1 KARTHIGESU JA

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10  The trial judge`s decision

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12 The learned judge had accepted the valuer`s assessment that the fair value of the shares as at 1 October 1990 was between $3.35 and $3.57. He adopted the mean figure of $3.46 as the mean value as at 1 October 1990. This ruling was accepted by both Yeo and the respondents. However, Yeo appealed against the learned judge`s decision not to grant interest and the respondents appealed against his decision to enhance the value of each share to $4.67.

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14 Re Bird Precision Bellows Ltd [1984] Ch 419[1984] 3 All ER 444 when Nourse J said, `I have never heard of interest being payable before there is an obligation to pay principal` which remark was endorsed by Purchas LJ in the Court of Appeal (reported at [1986] Ch 658; [1985] BCLC 493). The learned judge further cited the case of Irish Press plc v Ingersoll Irish Publications Ltd [1995] 2 ILRM 270 as authority that s 216(2) of the Act does not empower the court to grant damages as that would not be a relief `with a view to bringing an end or remedying the matters complained of`. As such, he found that he could not impose interest payment on the period before the order to purchase was made and consequently made no order that the respondents pay interest on the purchase price of the shares from 1 October 1990 up to the date of judgment.

15  for some seven years the petitioner was denied the benefit of his shareholding while the respondents seemingly plundered the company or siphoned off its profits to the respondent`s other entities. To take no account of that would be tantamount to sanctioning wrongdoings and rewarding the oppressor. That would be to turn justice on its head .` As such, the learned judge enhanced the value of each share by fixing it at $4.67 per share which represented a 35% increase over a period of seven years, that is, a 5% increase per year. In enhancing the value, the learned judge was taking into account the benefits and growth which would have accrued to the company but for the oppressive acts. This enhancement of the value of the shares was the subject of CA 128 of 1998.

16  Civil Appeal No 127 of 1998

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18 This was an appeal by Yeo against the decision of the learned judge with respect to the issue of interest. Yeo contended that the learned judge erred in not awarding interest on the purchase price of his shares in the company. Yeo`s counsel submitted that there were three issues arising in the appeal. The first issue was whether s 216(2) of the Act empowers the court to award or impose interest on the purchase price of Yeo`s shares in the company, by way of damages or otherwise, and whether such interest could be given for the period prior to the order for the purchase of the shares. The second issue was whether, if the first issue was decided in the affirmative, the court should, in the circumstances of the present case, exercise its discretion to order that such interest should commence from a date prior to the determination of the purchase price of Yeo`s shares. The third issue related to the date interest should commence from and the rate of interest applicable.

19  The background facts

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21 The appellant`s case set out in lengthy detail allegations of oppression which were similar to that set out in Yeo`s affidavits. Yeo`s counsel submitted that there had been systematic oppression perpetrated against Yeo, there was deliberate delay in purchasing Yeo`s shares, there was loss and detriment suffered by Yeo and there were huge profits enjoyed by Poon and his companies. It was further submitted that the court should look at all these background facts in deciding whether it would be fair and equitable to award interest and the extent of the compensatory factor in fixing the rate of such interest and the period for such interest.

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26 Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227 was cited. This was a case heard by the Privy Council from an appeal from Malaysia and related to the construction of s 181 of the Malaysian Companies Act 1965. Lord Wilberforce said this in his judgment at p 228I (2nd column):

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28 Coombs v Dynasty [1994] 14 ACSR 60. Since this was the main authority relied upon by counsel in support of her contention that interest should be awarded in this case, some detailed analysis of the case is required. Coombs was an oppression action under s 260 of the Australian Corporations Law. Section 260(2) of the Australian Corporations Law provides that `the Court may ... make such order or orders as it thinks fit, including but not limited to, one or more of the following ...` and goes on to provide for specific reliefs. In Coombs , various oppressive acts were done by the majority shareholder, which were unfairly prejudicial to the minority shareholder. These acts included an allotment of shares at 31 March 1988 deliberately made at below net tangible asset backing of the shares to achieve a watering down of Mr Coombs` interest. Von Doussa J at first instance concluded that the shareholding of Mr Coombs should be valued immediately before the restructure occurred on 31 March 1988 and added that an `interest factor should be allowed on that amount thereafter to arrive at a fair price at which his shares should be purchased now.` He then went on to state that `it was necessary to add an interest factor on the value of the shareholding at 31 March 1988 to compensate for the deferred payment of that value.` A period of 61/4 years had passed between that time and the date of the order for the purchase of shares. Thus, the court then added 12% simple interest on the price of the shares for that period of time and added the value of this interest to the value of the shares, ie the price of shares was adjusted upwards to factor in interest. To see 12% simple interest on a figure of $296,270 for 61/4 years would add $222,202 giving a total of $518,472. The fair price at which the majority was to acquire the shareholding of the Coombs was thus ordered at $518,000.

29  Coombs v Dynasty Pty Ltd was appealed against. The Federal Court of Australia in the appeal considered the award of interest by von Doussa J. They held that since the interest award was merely used as a proxy for measuring the loss suffered by Mr Coombs through not having access to his investment rather than being strictly interest in the conventional sense, it was thus an appropriate award. There was nothing wrong in treating the interest factor as `compensation` for Mr Coombs not participating in those benefits. As was said in that case Mr Coombs was not awarded interest qua interest; rather the judge used interest as a proxy to measure the increment in the value of Mr Coombs` investment in the company appropriate to reflect the fact that the `Thomas interest` had the use of Mr Coombs` investment since March 1988.

30  Coombs was an interest factor and not interest qua interest. In Coombs , the learned judge had, in the circumstances of the case, factored in the interest component at a commercial rate from the date of the issue of shares to the date of the order to arrive at a fair price at which the shares should be purchased. In the present case, Chao Hick Tin J had not used the method used by von Doussa J to compensate the minority shareholder. However, he had increased the share value by 5% per year over a period of seven years in his assessment of the fair price at which the shares should be purchased. This was effectively what had been done in Coombs. To allow Yeo now to claim interest on top of the adjustment in the value would be in effect double-compensation.

31  Coombs did which was to calculate the interest factor separately from the value of the shareholding as at 31 March 1998. The other alternative would have been what Chao Hick Tin J did in the present case: to increase the share value by a certain amount in order to arrive at what he believed to be an assessment of the fair price. The most important thing was to fix a price which represented fair value in the circumstances of the case. In the present case, Chao Hick Tin J clearly felt that increasing the share value by 5% over a period of seven years would be sufficient to arrive at a fair value. We saw nothing wrong with his exercise of his discretion and saw no reason to substitute this by awarding interest instead of the increase of 5%.

32 Re Dalkeith Investments [1984] 9 ACLR 247 in support of her proposition that interest could be awarded to cover a period before the date on which the purchase order was made. Briefly, this was a case whereby the parties (members of a family) entered into an arrangement which was essentially a partnership in corporate form. A divorce ruined the relationship between the parties. As such, it became difficult to conduct the affairs of the company. The court directed that the respondents were to purchase the petitioner`s shares at a value to be assessed and the costs of and incidental to the transfers of shares including stamp fees etc and interest at 12% to be paid by the respondents to the petitioners. There was nothing in the case that stated when the interest was to run from. This was conceded by Yeo`s counsel. However, counsel contended that this case seemed to treat it as trite law that the court had power to and did grant interest on the purchase price of the shares.

33  Re Dalkeith Investments `did not appear to have ordered the payment of interest in respect of the period prior to the date of judgment`. In fact, as the respondents` counsel pointed out, the court in that case made only one reference in the judgment to interest at p 255:

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35 Re Bird Precision Bellows Ltd [1984] Ch 419[1984] 3 All ER 444[1986] Ch 658[1985] BCLC 493 (CA). This case would also have to be examined in detail. In this case, the petitioners held 26% of the shares in a company and the respondents held the remaining 74% of the shares in the company. In April 1981, the petitioners were removed from office and excluded from the company`s business. In October 1981, the petitioners presented a petition under s 75 of the Companies Act 1980 alleging that the affairs of the company had been conducted in a manner unfairly prejudicial to their interests as members and sought an order under s 75(4)(d) of that Act that the respondents purchase their shares. The petition came on for hearing on 23 November 1981. At this hearing, both parties came to an agreement that the respondents would purchase the petitioners` shares at a price that the court would determine and a consent order to that effect was made. The consent order contained an order for liberty to apply for directions as to payment of the purchase price and `interest (if appropriate)`. The matter came before Nourse J on 28 October 1983 and the purchase price of the shares of the petitioner was determined. The matter was restored for hearing on 25 November 1983 for parties to argue on, inter alia, whether interest was payable.

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37  Re Bird Precision Bellows Ltd ought to be confined to its facts and not cited as authority for the proposition that interest could never be ordered on the purchase price of shares prior to an order for purchase in an action for minority oppression. This is because, in that case, there was an agreement between the parties for the sale of the shares which was put into a consent order and the consent order did not provide for interest to be paid on the purchase price or damages to be paid for the loss of use of the purchase price.

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41 Irish Press plc v Ingersoll Irish Publications Ltd [1995] 2 ILRM 270. In this case, the court held that, under the corresponding provisions of the Irish Companies Act, it was not open to the court to award damages under an oppression petition. Blayney J stated at p 10:

42 Scottish Co-operative Wholesale Society v Meyer [1959] AC 324 and Re Greenore Trading Co Ltd [1980] 1 LRM 94, Blayney J said at p10:

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47 Diligenti v RWMD Operations Kelowna Ltd (No 2) [1977] 4 BCLR 134, the question of whether a buy out order made against a majority shareholder is a `pecuniary judgment` arose. In that case, Fulton J held at p 171:

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52 Re G Jeffrey (Mens Store) Pty Ltd [1984] 9 ACLR 193 that the refusal of a majority shareholder to purchase the shares of a minority shareholder cannot form the basis of a complaint in a minority oppression case. As Crokett J said at 199:

53  Irish Press plc was persuasive authority that damages cannot be awarded in a minority oppression action. As the respondents pointed out, Yeo`s contention would only stand if there had been a valid agreement between the respondents and him that the respondents would purchase his shares, and the respondents subsequently reneged on the agreement. This would be an action for breach of contract. An example of this would be our Court of Appeal decision in Tatung Electronics (S) Pte Ltd v Binatone International Ltd [1991] SLR 204 whereby this court awarded three heads of damages for breach of contract by the defendant. The heads of damages included one for interest on the purchase price of the 7,665 television sets detained by UK customs as a result of the breach committed by the defendant. Yong Pung How CJ justified the award of interest on the purchase price. His Honour said at p 210 B-C:

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55  Re Bird Precision Bellows Ltd , Nourse J did not think that it was necessary to express a view on whether or not the court had the power under s 75 to award `damages for loss of the use of the purchase moneys during a period when they ought to have been in hand.` However, one of the reasons why Nourse J thought it was unnecessary for him to express a view was that it was:

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58  Civil Appeal No 128 of 1998

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60 The facts by which this cross-appeal arose were the same as those in CA 127/98. The issue in this appeal was whether the learned judge erred in enhancing the value of each share from the valuer`s assessment at $3.46 to $4.67 which was effectively an increase of 5% per year over a period of seven years. The learned judge`s reason for enhancing the value of each share was that an adjustment had to be made because:

61  The appellants` contentions (ie Dickson Investment and Poon`s)

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63 To avoid confusion we will continue to refer to Dickson Investment and Poon who are appellants in this appeal as `the respondents` The respondents contended that the learned judge had erred in enhancing the share value. One of the reasons was that the shares were valued on the basis of the company as a going concern. The future growth of the company had been factored into the fair value of $3.46 per share by the use of the capitalisation of future maintainable earnings (FME) basis, and accordingly Yeo could not be and had not been deprived of the benefit of his shareholding since 1 October 1990. They contended that it would thus be `double counting` if the future growth of the company was factored into the fair value already arrived at on a valuation done on the capitalisation of FME basis. In any event, they further contended that the growth rate of the company selected by the learned judge was mere speculation and unsupported by evidence. The respondents further contended that the learned judge had taken into account allegations of wrongdoings which had not been admitted or proved. In any event, they alleged that such wrongdoings did not have any effect on the value of the shares.

64  Yeo`s submissions

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66 Yeo submitted that the learned judge was correct in enhancing the value of his shares in the company from the mean value of $3.46 per share to the fair value of $4.67 per share to take into account the growth of the company for the next seven years after 1 October 1990 as if there had been no oppression by the respondents. With regards to the method of valuation used by the valuer, it was contended by Yeo that this method did not factor in the future growth of the company so as to give a value of the shares as at the date of the order for sale, ie 11 April 1998. As for the respondents` contention that the growth rate used by the learned judge was mere speculation and was unsupported by evidence, Yeo submitted that the learned judge was justified both in law and on the facts to do so as there was clear evidence in the petition and affidavits filed in the action as well as in the valuation report to support a growth of more than 5%. As for the respondents` last contention that the learned judge had taken into account allegations of wrongdoings which had not been admitted or proved, and which in any event did not have any effect on the value of the shares, Yeo submitted that since this was an action for minority oppression and the fact that the buy-out of the shares was the substantial remedy prayed for by him, the learned trial judge was entitled to take into account the allegations of wrongdoings and oppression in deciding to enhance the value of his shares in the company. Yeo submitted that it made no difference that the order to purchase his shares was made while the petition was stayed as the relief ordered was what was asked for in the petition. Further, the application for further directions was heard on the basis that oppression was assumed to have been established and costs were agreed to be paid by the respondents. As such, the acts of oppression were significant in affecting the value of the shares.

67  Issues in the appeal

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69 In our opinion, there were three main issues to be dealt with. The first issue to be dealt with was whether the learned judge could take into account allegations of wrongdoings which had not been admitted or proved. The second issue was whether the valuation of shares based on capitalisation of future maintainable earnings took into account the future growth of the company such that the learned judge had `double counted` when he increased the mean value to take into account the growth of the company if there had been no oppressive acts by the respondents. A related issue was whether the court had the discretion to permit an enhancement of the share value. The last issue was whether the growth rate used by the learned judge was unjustified and mere speculation.

70  Whether the learned judge could take into account allegations of wrongdoings which had not been admitted or proved

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72 The respondents submitted that the learned judge erred in taking into account allegations of wrongdoings and oppression which had not been admitted or proved. They contended that since by the order of court dated 7 July 1995, a stay of the petition was ordered and as such the petition and its merits were not heard by the learned judge; it was therefore wrong for the learned judge to rely on the allegations of oppression. Further, it was contended that when an order for a stay of an oppression action was made on the ground that there was an offer by the respondent to buy out the petitioner at a fair value of his shares it would be unreasonable for the petitioner to pursue his action further. The respondents cited Re A Company (No 003843 of 1986) [1987] BCLC 562 and Re A Company (No 00836 of 1995) [1996] 2 BCLC 192 as authorities in support. Even if the allegations of wrongdoing and oppression were true, these would merely constitute acts of oppression occurring after 1 October 1990, which the valuer had ignored in his valuation. As such, these acts could not and did not have the effect of depressing the value of the shares. Lastly, there was no evidence whatsoever that Yeo had been denied any benefit which the other shareholders had enjoyed.

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74  Re A Company (No 003843 of 1986) and Re A Company (No 00836 of 1995) . However both these cases were stayed because the reliefs sought by the petitioners were found by the court not to have been realistic or appropriate under the particular circumstances of the case. The court in both cases found that the offers made by the majority shareholder to buy out the minority shareholders` shares were reasonable and reflected what the petitioners could realistically have expected upon prosecution of their petitions. It was under those circumstances that the court awarded a stay of the petitions.

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76  Valuation of shares in a going concern based on capitalisation of future maintainable earnings

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78 The respondents` counsel, Mr Joseph Ang, cited to us extracts from Steven Sirianos` discussion of the FME basis in his article `Problems of Share Valuation Under Section 260 of the Corporations Law` in Company and Securities Law Journal at p 99:

79  The Company Lawyer Vol 8 No 2 commented at pp 67 and 68:

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81 Coombs v Dynasty Pty Ltd [1994] 14 ACSR 60). They submitted that the learned judge had relied on that case wrongly as, in that case, the valuer had used the net tangible asset (NTA) basis of valuation.

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84  Coombs .

85 Re A Company (No 002612 of 1984) [1986] 2 BCC 99 where no adjustment had been made despite the lapse of a year between the valuation as at the date of the petition and the date of the judgment. The valuation had been done on the capitalisation of FME basis. Another case cited was Re Bodaibo Pty Ltd [1992] 6 ACSR 509 in which again the method of valuation used was on a going concern basis at a high capitalisation rate. Again, no adjustment was made to the value of the shares. Further, in Re Bird Precision Bellows Ltd , no adjustment was made by reason of the lapse of almost two years between the date of the valuation and the date of the judgment. Again, the valuation was done on a capitalisation of FME basis.

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89  Coombs , von Doussa J had ordered that the shares be valued as at 31 March 1988 which was the date when a special meeting of the members of the respondents was held and before the restructuring of the company took place. Based on this date, the NTA basis was adopted because the company had a history of losses since incorporation. The NTA basis was opted for as using the FME basis would result in an even lower share value due to the company`s history of losses. It seemed to us that the principal consideration was merely the date which would give the fairest share price for the applicant. Once this date was determined, the method of valuation chosen would be one which was most appropriate for the state of the business at the date that the court had fixed for the valuation. This did not seem any support for the respondents` contention that the judge had only added an interest factor in that case because of the fact that the NTA basis had been used. In fact, von Doussa J had found that it was `necessary to add an interest factor on the value of the shareholding at 31 March 1988 to compensate for the deferred payment of that value`.

90  Re Bodaibo Pty Ltd , Vincent J stated that in the ascertainment of a fair price, consideration must be given, inter alia, to the selection of the most appropriate method of valuation in the particular circumstances of the matter before the court. On the facts, the most appropriate basis was the assessment of the value of the business as a going concern. No compensation was added as the valuation date was only seven months before the judgment date. In any case, as Yeo rightfully pointed out, the issue was never raised. Nowhere in the judgment was it stated that in a case where shares were valued on a capitalisation of FME basis that an adjustment to the share value could not be made. Similarly in Re A Company (No 002612 of 1984) , this issue was never raised and canvassed. Further, the time lapse was only one year and it may have been that there was no evidence of any possible appreciation in the share value but for the acts of oppression. In Re Bird Precision Bellows Ltd , the case was again silent on this issue. Further, there was a consent order which did not provide for interest to be paid on the purchase price or damages to be paid for the loss of use of the purchase price.

91  Whether the court has the discretion to enhance the share value

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93 The respondents contended that the court has no power to make an award of damages in an oppression action and cited the cases of Re Bird Precision Bellows and Irish press plc v Ingersoll Irish Publications Ltd as authorities therefor. However, Re Bird Precision Bellows was not really an authority on this. What was held was that pre-judgment interest could not be awarded. However, Nourse J did note counsel`s contention that the court under s 75 of the English Companies Act 1980 had the power to award `damages for loss of the use of the purchase moneys during a period when they ought to have been in hand`. However, as there was a consent order in that case which he felt encapsulated all the terms of the agreement between parties, Nourse J did not think it necessary to express a view on that point and refrained from doing so.

94  Irish Press , it was acknowledged that compensation could be included in the relief given in an extremely limited context. The court held that it was possible where the oppressor had been directed to purchase the shares of the oppressed shareholder to award compensation which resulted from the court`s determination of what would be a fair price for the shares in the particular circumstances. What the case stood for was that there is no general right to compensation for loss resulting from oppression. However, a limited relief could be offered like that in Scottish Co-operative Wholesale Society Ltd v Meyer & Anor [1959] AC 324 and Coombs v Dynasty Pty Ltd & Anor [1994] 14 ASCR 60 where von Doussa J at p 103 held that:

95 Re Bodaibo Pty Ltd [1992] 6 ACSR 509, Vincent J stated at p 515:

96  Re Bodaibo Pty Ltd the section gives the court appropriately extensive discretionary power to effect justice in the particular circumstances of individual cases. As such, we were of the view that the court has the discretion to enhance the share value in a minority oppression case and that the learned judge did not err in doing so.

97  Whether the growth rate used by the learned judge was mere speculation and unsubstantiated by evidence

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99 In our opinion, it was clear that the determination of share value need not be in accordance with strict accounting principles. The role of the court was merely to determine a price that is fair and just in the particular circumstances of the case. As stated by von Doussa J in Coombs at p 102:

100 Re Bagot Well Pastoral Co Pty Ltd; Shannon v Reid [1992] 9 ACSR 129, Cox J at p 147 said with regard to the assessment of the reasonable price to be paid for the petitioner`s shares:

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103  Conclusion

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105 For the reasons we have given both appeals CA 127 of 1998 and CA 128 of 1998 were dismissed.