29 May 2019
Abhilash s/o Kunchian Krishnan v Yeo Hock Huat & Anor  SGCA 14
The appeal before the Singapore Court of Appeal in Abhilash s/o Kunchian Krishnan v Yeo Hock Huat & Anor arose from a dispute over the valuation of shares in a private company, which were to be purchased at “fair market value”.
Mr Abhilash, the appellant, and Mr Yeo, the first respondent, were shareholders of the second respondent, JCS-Vanetech Pte Ltd (“JCSV”). A minority oppression suit commenced by the appellant was settled on the basis of a consent order that the first respondent (who was the majority shareholder) would purchase the appellant’s shares at “fair market value”, and that the court would determine the fair market value (“Consent Order”).
The trial proceeded for the sole purpose of examining the evidence given by the parties’ experts on the valuation of JCSV. The appellant’s expert valued JCSV on three bases: the income method, the net assets basis and the investment value basis. The first respondent’s expert valued JCSV at S$109,589 on a net assets basis and expressed the view that an income approach was not viable given JCSV’s loss-making history.
The High Court accepted the net asset basis valuation of the first respondent’s expert as the fair market valuation of JCSV. The appellant appealed the decision.
Decision on appeal
Before the Court of Appeal, the appellant raised a new basis for valuation. He argued that a third-party offer to acquire all the shares of JCSV at S$50 million, subject to due diligence, was the “best evidence” of the fair market value of the shares. The purchase price of S$50 million comprised S$10 million in cash and S$40 million in equity in a joint venture company to be set up with the third party.
The Court of Appeal granted leave to the appellant to introduce the new argument on appeal, but rejected the submission that the mere fact of the third-party offer was the “best evidence” of JCSV’s fair market value because it was an offer that a buyer was willing to pay in an at-arm’s-length transaction.
It held that evidence of a third-party offer was relevant but any fair market valuation is a fact-sensitive exercise and the court is not compelled to give determinative weight to such offers. The appropriate weight to be ascribed to such offers had to be determined on the facts on each case and, in particular, the terms and nature of the offer. The evidence of any offer must be carefully assessed to determine whether, and the extent to which, the offer is an accurate barometer of what a “genuine purchaser” would be willing to pay.
Where there is evidence of a third-party offer to acquire shares, and that offer is shown to be made at arm’s length, is genuine, and is not speculative and conditional, the court can and ought to take that offer into account. But the evidential value of such offers should not be elevated to the level that they invariably represent the “best evidence” of the fair market value.
The Court of Appeal proceeded to consider the third-party offer.
First, the Court of Appeal observed that both experts had not considered the third-party offer in their respective expert reports, and neither expert was of the view that this offer was determinative of the fair market value of JCSV.
Second, the features of the third-party offer precluded the court from treating it as reliable evidence of JCSV’s fair market value. The offer was at all material times expressly subject to due diligence and was always only a conditional offer.
Third, the S$50 million purchase price under the third-party offer was not a cash offer. Instead, it was an offer to pay S$10 million in cash coupled with S$40 million in equity in the proposed joint venture company. The fact that the equity was to be acquired for S$40 million did not mean that the equity itself had a fair market value of S$40 million.
Lastly, the third-party offer, at best, was merely an indication of the investment value of JCSV to the third-party, or the “special value” to a particular party, bearing in mind any investment plans the third-party may have had for JCSV. This number included a premium over the fair market value, which could not be appropriately discounted in the absence of expert evidence.
The Court of Appeal concluded that the appellant had not proven that JCSV had a fair market value of S$50 million. The court could not arrive at a speculative or arbitrary value in the absence of any other credible figure, and the appeal was dismissed.
This case illustrates the importance of considering all potential bases of valuation and adducing the necessary expert evidence to avoid the evidential gap that the Court of Appeal encountered in this case. Where previous offers by third parties are considered by the expert, it is also important for the expert to carefully consider the quality of such offers, and assist the court on the relevance of these offers to the determination of market value.