Estera Trust (Jersey) Ltd & Anor v Singh & Ors

This is the second-part judgment determining valuation and terms after Mr Justice Fancourt ordered that Jasminder Singh and Edwardian Group Limited must buy the petitioners' shares. The court fixed the valuation date as 30 June 2014 and determined the market value of the Company's hotel assets, the net asset value of the Company and the market values of three share tranches (A, B and C) necessary to calculate the marriage value. The court rejected a 10% portfolio premium and adjusted the Leicester Square residual valuation to reflect a contingency allowance of 7.5%.

The court adopted the hotel valuations of the petitioners' hotel valuer (subject to the Leicester Square contingency change) as more likely to reflect market sentiment at the valuation date and found aggregate hotel value £1,275,400,000. It treated cash and stock as separate company assets and, after stated adjustments, fixed the Company's net asset value at £894,200,000. For share valuations the court applied (i) a 45% overall discount to pro rata value for the 19.89% A tranche (minority discount), (ii) a 10% discount for the 5.28% B tranche and (iii) a 2.5% discount for the 25.17% C tranche. Using the prescribed formula (price = A + 1/2(C-(A+B)), the court fixed the purchase price at £137,400,000.

The court allowed a first payment schedule and interest: an initial payment of £22,500,000 within 28 days and the balance within six months (with liberty to apply), simple interest at 1% above Bank of England base rate from 5 July 2018 to the date of this judgment, and interest at 4% above Bank of England base rate thereafter until payment.

Background and procedural posture. This is the second part of a trial after the court previously granted relief ordering the respondents (JS and the Company) to buy the petitioners’ shares. The court directed three valuations as at 30 June 2014 (A, B and C tranches) so that marriage value could be identified and shared 50:50. Expert evidence was heard from hotel valuers and share valuers, with joint statements identifying points of agreement and dispute.

Nature of application. The hearing determined the market values of the Company’s hotel assets, the Company’s net asset value, and the market values of the A (19.89%), B (5.28%) and C (25.17%) tranches in order to calculate the price payable under the formula A + ½(C-(A+B)). The court also determined payment terms and interest.

Issues framed by the court. The principal contested issues were: (i) the correct hotel valuations and whether a portfolio premium (10%) should be applied; (ii) the appropriate treatment of the Leicester Square development site; (iii) adjustments to company assets (notably whether to deduct a cash buffer and treatment of certain accounting items); (iv) the appropriate minority discount or premium for the A, B and C tranches; and (v) the timetable and interest on payment.

Court’s reasoning and findings.

• Hotel valuations. Both hotel experts used discounted cash flow approaches. The court preferred the petitioners' valuer (Mr Stoyle) on balance because his figures better reflected market sentiment and comparable contemporaneous valuations, subject to a reduction in the Leicester Square residual valuation contingency from 5% to 7.5%. The court found aggregate hotel value £1,275,400,000.
• Portfolio premium. The court rejected adding a portfolio premium. It held that any premium was too speculative, not compelled by market evidence, and inappropriate to add to the market-value exercise.
• Leicester Square site. The court concluded it was more likely than not that the market would have been presented with the 350-room scheme and that the site valuation should reflect that scheme; it adjusted contingency to 7.5%, producing a residual land value of £120.4m in the valuation exercise.
• Company assets and adjustments. The court treated cash and stock as separate assets (not double-counted with hotel valuations), declined to accept opaque attempts to increase debt or remove prepayments in a way that departed from audited accounts, excluded a trivial hedging item, and added the court-ordered notional adjustments of £15.8m. The court fixed the company net asset value at £894,200,000.
• Share valuations and discounts. The court rejected the petitioners' expert method of a separate “realisation benefit” (concluding it double-counted) and preferred a reasoned compromise between experts. It adopted a 45% discount for the minority A tranche, a 10% discount for the 74.53% combined majority holding applied to the B tranche, and a 2.5% discount to the C tranche.
• Price and payment. Calculating C-(A+B) produced a marriage value of £79,200,000; half (£39,600,000) added to the market value of A produced £137,400,000 as the purchase price. The court ordered a first payment of £22,500,000 within 28 days and the balance within six months, awarded modest pre-judgment-to-judgment interest at 1% above Bank rate from 5 July 2018, and post-judgment interest at 4% above Bank rate until payment.

Wider context. The court noted difficulty and inherent uncertainty in retrospective valuation, the sensitivity of residual valuations to inputs, and the rarity and speculative nature of portfolio premia. The judgment contains detailed subsidiary findings on valuation inputs and the court’s reasoning where experts differed.

The court ordered that the respondents (Jasminder Singh and Edwardian Group Limited) must purchase the petitioners’ shares. The market value of the Company’s hotel assets was fixed at £1,275,400,000 and the Company’s net asset value at £894,200,000. Discounts applied were 45% to the A tranche, 10% to the B tranche and 2.5% to the C tranche. Using the prescribed formula, the purchase price for the petitioners’ shares was fixed at £137,400,000. Payment terms: first instalment £22,500,000 within 28 days, balance within six months (liberty to apply). Interest: simple interest at 1% above Bank of England base rate from 5 July 2018 until this judgment, and 4% above base rate from this judgment until payment. The court’s reasoning rested on preferring the petitioners’ hotel valuations (subject to the Leicester Square contingency adjustment), rejecting a portfolio premium as speculative, and applying proportionate minority/majority discounts on considered grounds.