Turf Club Auto Emporium Pte Ltd and others v Yeo Boong Hua and others and another appeal

• Judge: Sundaresh Menon CJ
• Judgment Date: 22 November 2018
• Neutral Citation: [2018] SGCA 79
• Citation: [2018] SGCA 79
• Defendant Counsel: Adrian Tan, Ong Pei Ching, Joel Goh Chee Hsien and Hari Veluri (TSMP Law Corporation),Irving Choh and Melissa Kor Wan Wen (Optimus Chambers LLC)
• Published date: 27 November 2018
• Hearing Date: 07 September 2018
• Plaintiff Counsel: Kelvin Poon and Alyssa Leong (Rajah & Tann Singapore LLP)
• Date: 22 November 2018
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeals Nos 168 and 171 of 2015
• Subject Matter: Civil Procedure,Costs,Contract,Damages,Measure of damages

Andrew Phang Boon Leong JA (delivering the judgment of the court): Introduction

The present judgment deals with the remaining issues arising from our decision in Turf Club Auto Emporium Pte Ltd and others v Yeo Boon Hua and others and another appeal [2018] 2 SLR 655 (“the Judgment”) which we delivered on 2 August 2018. To briefly summarise our holdings (and using the same terms as defined therein), we held, inter alia, that: SAA and Koh KM are liable in contract for the Repudiatory Breaches. Specifically, SAA breached cl 11 and the implied term of the Consent Order by acquiring the 2007 Head Lease without subsequently granting sub-tenancies to the JV Companies (ie, TCAE and TCPL); and both SAA and Koh KM breached cl 5 of the Consent Order by failing to disclose the existence of the 2007 Head Lease to the KPMG Entities, therefore hindering them in the discharge of their duties (at [90] of the Judgment). With regard to the issue of what contractual remedies are available for the breaches of the Consent Order, neither an award of Wrotham Park damages nor AG v Blake damages is an appropriate remedy on the facts. Rather, the Respondents are to be awarded compensatory damages assessed by reference to the value of the Respondents’ 37.5% shareholding in the JV Companies at the time of the Repudiatory Breaches, with a premium of 15% to more accurately reflect their expectation loss (at [289] and [295] of the Judgment). Tan CB, Tan Senior and Koh KM are liable for the torts of conspiracy and inducement of breach of contract by causing SAA to appropriate the benefit of the 2007 Head Lease for itself, in breach of the Consent Order (at [385] of the Judgment). The quantum of damages due to the Respondents under these tortious claims is identical to that due under the contractual claim (at [387] of the Judgment). Accordingly, SAA, Koh KM, Tan CB and Tan Senior are jointly and severally liable to the Respondents for compensatory damages assessed by reference to the value of the Respondents’ 37.5% shareholding in the JV Companies at the time of the Repudiatory Breaches, with a premium of 15% (at [388] of the Judgment).

We then directed the relevant parties to file further written submissions on the value of the shares in the JV Companies at the time of the Repudiatory Breaches, so as to determine the quantum of damages payable to the Respondents (at [306] and [389] of the Judgment). We also directed parties to submit on the appropriate cost orders to be made in relation to these two appeals (at [390(c)] of the Judgment).

Having carefully considered the parties’ submissions, we now give our decision. We shall first deal with the issue of damages, before turning to the issue of costs.

Quantum of damages payable to the Respondents

The first issue essentially turns on which of the two competing valuations of the JV Companies placed before this Court should be accepted. The Respondents rely on the expert report of Mr Timothy James Reid, director of Ferrier Hodgson Pte Ltd, dated 19 September 2012 (“the Ferrier Hodgson report”). This report employed the discounted cash flow (“DCF”) and residual income model (“RIM”) methods to derive a valuation of TCAE at $18.6m, and of TCPL at $21m, as of 31 May 2006. If the Ferrier Hodgson report is accepted, the Respondents’ 37.5% shareholding in the JV Companies works out to $14.85m. Using that figure as a base and applying some adjustments, the Respondents submit that damages should be quantified at $19,923,750.

On the other hand, the Appellants rely on the valuation reports of KPMG Corporate Finance Pte Ltd dated 10 August 2007 (“the KPMG CF reports”). It will be recalled that these reports were produced pursuant to the Consent Order: the KPMG Entities had been engaged to investigate the financial affairs of the JV Companies and to conduct an independent and fair valuation of their shares (at [10] of the Judgment). Using the net asset valuation (“NAV”) method, TCAE’s shares were given a nil value while TCPL’s shares were valued at $1.33 per share, as of 31 May 2006. If the KPMG CF reports are accepted, this puts the Respondents’ 37.5% shareholding in the JV Companies at $997,500. Using that figure as a base and applying some adjustments, the Appellants submit that damages should be quantified at $481,500.

Unfortunately, both the Ferrier Hodgson report and the KPMG CF reports are eminently unsatisfactory because the valuation date used in each (ie, 31 May 2006) is incorrect for the purposes of quantifying the damages payable to the Respondents. The proper valuation date is the time of the Repudiatory Breaches, which is essentially the time at which SAA should have granted (but did not grant) the sub-tenancies to the JV Companies after receiving the 2007 Head Lease from SLA. Historically, SAA entered into its sub-tenancy agreements with the JV Companies on the same day that it received the corresponding Head Leases from SLA (see Turf Club Auto Emporium and others v Yeo Boong Hua and others and another appeal and other matters [2017] 2 SLR 12 at [19]–[20] and [25]–[26]). A strong inference may thus be drawn that SAA should have granted the sub-tenancies to the JV Companies on the same day that it received the 2007 Head Lease from SLA, which was 22 May 2007. On this basis, 22 May 2007 should be taken as the time of the Repudiatory Breaches, and hence the proper valuation date. However, neither of these reports used 22 May 2007 as the valuation date, and none of the parties proposed any way to account for this disparity. We note that the Ferrier Hodgson report and the KPMG CF reports are the entirety of the evidence on quantification that the parties had thought to adduce at the trial below. We had also disallowed the parties from adducing any further evidence on this issue, for the reason that absent an order for bifurcation of the proceedings, the Court should not in effect now make such an order by permitting the parties to adduce further evidence (at [304]–[305] of the Judgment). In the circumstances, this Court can only proceed on the basis of the limited evidence before it.

The incorrect valuation date is not the only reason why each of these reports is unsatisfactory. We begin with the Ferrier Hodgson report prepared by the Respondents’ expert, Mr Reid. In our judgment, this report was an obvious over-valuation of the JV Companies due to the unreliability of the main source material. As the Appellants pointed out, the DCF and RIM methods are earnings-based valuation methodologies for which it was necessary to have projections of the JV Companies’ financial performance. Mr Reid could have developed these projections based on the JV Companies’ audited accounts for FYs 2002–2006. However, he did not do so because of his “concerns” about the apparent inaccuracy of these accounts. Specifically, Mr Reid said he had been “instructed” by the Respondents that, among other things, they had been excluded from the management of the JV Companies and that the accounting work had been done by Koh KM’s daughter who may not have been properly qualified to do so. Accordingly, Mr Reid adopted what he called a more “objective approach” to valuation, which involved: (a) assessing the premises available for lease; (b) assessing a reasonable level of occupancy; (c) determining a reasonable rate of rental; (d) identifying a reasonable level of expenditure; and (e) assessing a reasonable level of profitability. He did this by visiting the Turf City site to “understand the potential revenue streams that existed at the site”, and shortly thereafter, meeting with the Respondents “to assess and detail the likely profitability, both historical and projected, of both [JV Companies] based on the estimated revenue streams. [Ferrier Hodgson] assisted in the formulation of the calculations but the assessment of the inputs was provided by the client[s].” In his oral testimony, Mr Reid made clear that he had been “instructed as to the revenue streams” [emphasis added] by the Respondents, and from there “compile[d] what was effectively a proforma revenue stream”. In other words, the two pillars forming the foundation of the valuation in the Ferrier Hodgson report were (a) Mr Reid’s observations from his site visit and (b) the Respondents’ instructions.

In our judgment, Mr Reid’s chosen methodology was far from the “objective approach” that he said it was. Rather, the Ferrier Hodgson report was highly subjective, having been based very heavily on the Respondents’ instructions. This was problematic on several counts. Any instructions given by the Respondents would have been based on their subjective interpretation and understanding of perceived facts, and would therefore be in the nature of opinion. Since the Respondents are not experts, the Ferrier Hodgson report is premised on fundamentally inadmissible evidence. Even if the Respondents’ instructions were in the nature of facts, it would be inadmissible as hearsay. It is important to note that the Respondents did not adduce any evidence of these instructions either on affidavit or at trial. While Mr Reid did refer to an “Affidavit of Yeo Boong Hua, 28 June 2012” as part of his information sources and stated that this affidavit documented the “assessment of the inputs … provided by the clients”, no such affidavit appears to have been filed in the proceedings. Thus, the Respondents’ instructions, which form the main source material for the Ferrier Hodgson report, have not been tested in court.

But even if such material were admissible, the weight to be placed on the resultant report must be significantly reduced for several reasons. First, as mentioned, the Respondents have not referred to any evidence to substantiate their instructions to Mr Reid. It is therefore impossible to verify or evaluate the overall accuracy of...