This case centred on a dispute that arose in a settlement agreement between the minority shareholders (Plaintiffs) and majority shareholders (Defendants) of Agape Holdings Pte Ltd (“Agape Singapore”), a company incorporated in Singapore.
The Plaintiffs previously commenced legal proceedings against the Defendants based on minority oppression. Pursuant to mediation at the Singapore Mediation Centre, parties settled the matter with the Defendants agreeing to buyout the minority Plaintiffs’ 19% stake in the Company.
Pursuant to Clause 1.1 of the Settlement Agreement, the parties had agreed to appoint an independent valuer to assess the fair market value of the Plaintiffs’ 19% shareholding in the Company as at 31 December 2016.
The Company is a holding company and owns 100% of the shares in Agape Vietnam Company Limited (“Agape Vietnam”), which was incorporated for the purpose of investing in a waterfront city project in Haiphong Vietnam (the “Vietnam Project”). Ernst & Young Solutions LLP (“EY”) was eventually appointed jointly by the parties to conduct the valuation exercise and EY’s valuation report dated 2 January 2018 (the “EY Report”) was sent to the parties on 10 January 2018. Since the Vietnam Project was critical to the valuation exercise, EY appointed CBRE (Vietnam) Co Lted (“CBRE”), a property valuer in Vietnam, to assess the market value of the Vietnam Project.
The EY Report assessed the fair market value of the Plaintiffs’ shares to be US$4,165,675 as at 31 December 2016 (the “Valuation Date”). In breach of the Settlement Agreement, the Defendants did not make any payment to the Plaintiffs in accordance with the agreed deadline and requested EY to reassess the valuation of the Company’s shares 4 days before the deadline of the first instalment payment.
Accordingly, the Plaintiffs commenced legal proceedings against the Defendants and sought, inter alia, the following orders:
- A declaration that the EY Report be final and binding upon the parties; and
- An order that the Defendants are jointly and severally liable to pay the sum of USD 4,165,675 (plus accrued interest) to the Plaintiffs for the purchase of the Plaintiffs’ 19% shareholding in the Company within 14 days of the orders made.
In defence, the Defendants submitted that the EY Report was not final and binding upon the parties. The Defendants postulated 2 main grounds in attempting to set aside the EY Report, namely (1) EY had exceeded the scope of its contractual mandate and (2) the EY Report was marred by manifest errors.
The Plaintiffs’ application was granted by the High Court on 8 February 2019. Our Mr Lee Ee Yang and Ms Charis Wong acted for the successful Plaintiffs.
The 2 issues that arose for determination were as follows:
- Whether the EY Report was marred by manifest errors; and
- Whether EY had departed from its contractual mandate.
Whether the EY Report was marred by manifest errors
The court affirmed the decision in Poh Cheng Chew v K P Koh & Partners Pte Ltd and another  2 SLR 573 that the only grounds to challenge a determination of an expert whom the parties agreed are:
- Material departure from instructions;
- Manifest error; or
- Fraud, collusion, partiality and the like.
The court also recognised that there is some debate over the approach the court should adopt with respect to manifest errors.
In Geowin Construction Pte Ltd (in liquidation) v Management Corporation Strata Title Plan No. 1256  1 SLR(R) 1004 at , VK Rajah J preferred a narrow approach and held that the court should not stray beyond the actual report or award in considering how or why the decision was reached and the underlying evidence ought not to be re-examined or referred to. The right of review should be confined to correcting apparent mistakes that appear on the face of the report or award and determining whether the expert has complied with his terms of appointment.
However, in The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd  2 SLR 385 at , Chan Seng Onn J adopted a less strict approach and opined that there was no absolute rule preluding reference to matters beyond the face of the award od decision to establish a manifest error.
The learned judge then opined that he preferred Rajah J’s approach in Geowin for the following reasons:
- The narrow approach better accords with the fundamental principle that parties would have intended for the expert’s determination to be final and binding, except in exceptional circumstances.
- The narrow approach is more consistent with the principle that there must be finality to litigation as agreed by the parties.
- The narrow approach recognises that “courts have no greater expertise than expert valuers, and that where parties have chosen voluntarily to commit the determination of valuation to an expert, judicial restraint is an appropriate response (Holt v Cox (1997) 23 ACSR 590 at 597, cited in Geowin at ).
However, even under the less strict approach advocated in The Oriental Insurance, there are two requirements that the dissatisfied party has to fulfil before the court will conclude that an error is a manifest error, namely (1) the error must be so obvious and admit of no difference of opinion and (2) the error must be one that is obviously capable of affecting the expert’s determination.
As such, even if the less strict approach is applied, the court found that EY had not made any manifest errors as the alleged errors identified by the Defendants were not obvious and required the court to extensively investigate whether EY or CBRE had made any errors. This was not the appropriate forum for the inquiry to be undertaken given the court’s limited right of review. Furthermore, the court found that the alleged errors identified by the Defendants were merely differences of opinion between the Defendants’ expert and the Plaintiffs’ expert. It was not proper for the court to adjudicate between the merits of the contrasting opinions in deciding whether or not to set aside an expert’s determination.
The Defendants’ alleged errors were found to be unmeritorious:
- With regard to alleged manifest errors of law, the Defendants at best could only show that there was a difference in interpretation of local legislation and such differences do not amount to a manifest error of law. This was simply not the proper forum to determine whose interpretation of local legislation.
- With regard to alleged manifest errors of fact, the court found that there was no basis to set aside the EY report because (1) it was open for CBRE not to take into account land costs for the residual land as Agape Vietnam’s liability for further land costs was entirely speculative (2) EY couldn’t have made any manifest error in not taking into account all of Agape Vietnam’s commission expenses when such expenses were not even recorded on Agape Vietnam’s books and (3) compared with Savills’ method of valuation, the approach adopted by CBRE to value the school land in the Vietnam Project at most amounted to a difference in methodology and cannot qualify as a manifest error.
- With regard to the Defendant’s allegation that EY ought to have considered additional documents, the court found this argument unmeritorious as EY acted even-handedly and it was the proper course for EY to take in the interests of due process and finality as well as fairness to both parties. EY had also in the course of the valuation exercise granted various extensions of time to the Defendants at their request.
Whether EY exceeded the scope of the contractual mandate
The general inquiry to determine whether an expert has departed from its instructions comprises 2 steps, as stated in the Oriental Insurance at :
- Firstly, what did the parties agree to remit to the expert?
- Secondly, what was the nature of the mistake? If the expert’s mistake constitutes a material departure from instructions, then the expert’s determination is not binding on the parties.
The court observed that there is a distinction between a departure from instructions and mistakes made by the expert. This distinction was expressed in Nikko Hotels (UK) Ltd v MEPC plc  2 EGLR 103 at 108 using the analogy of answering the right or wrong question: if the expert has answered the right question in the wrong way, his decision will be binding. If he answered the wrong question, his decision will be a nullity.
The court found that it is apparent from EY’s statement of work in their letter of engagement that EY had a broad mandate in determining the market value of the Plaintifs’ shares and it did not stipulate in granular detail how EY was to conduct its valuation. For example, there was nothing to the effect that EY had to ensure that CBRE valued the Vietnam Project in accordance with any formula. As such, there was nothing to suggest that EY had departed from its instructions.
It is significant that the court preferred Rajah J’s approach in Geowin that the court should not go beyond the face of the report or award to examine the underlying evidence in determining whether a manifest error was made by the expert. Given that the Defendants have appealed against the decision, this could be a novel issue before the Court of Appeal.
Further, the High Court has affirmed a long history of consistent decisions which established the limited right of review with regard to an expert determination, as opposed to a determination by an arbitrator. This is an important distinction to note by parties entering into settlement agreements or agreements where valuation is concerned, in deciding whether an expert or arbitrator is to preside over the determination.
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