BC&G Care Homes Ltd Mr Crowley v Mr Bessell and Another
| Jurisdiction | England & Wales |
| Judge | Mr Recorder Davis-White QC |
| Judgment Date | 01 March 2016 |
| Neutral Citation | [2016] EWHC 1303 (Ch) |
| Court | Chancery Division |
| Date | 01 March 2016 |
| Docket Number | Case No: 3151/2014 |
[2016] EWHC 1303 (CH)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A NL
Mr Recorder Davis-White QC
(Sitting as a Judge of the Chancery Division)
Case No: 3151/2014
In the Matter of BC&G Care Homes Limited
And in the Matter of the Companies Act 2006
Mr Watson-Gandy (instructed by Labrums) appeared on behalf of the Applicant
Mr Bromilow (instructed by Machins LLP) appeared on behalf of the Respondents
On this application I am asked to determine whether there has been a manifest error in an expert's determination of the value of shares with the effect that his determination should be set aside.
On 28 May 2015 I made an order on the hearing of Mr Crowley's petition pursuant to Section 994 of the Companies Act 2006. The order required the respondents, Mr Bessell and Mr Giles, to purchase Mr Crowley's one-third share holding of 17,000 ordinary shares in BC&G Care Homes Limited (the "Company")..
The form of order, which was largely agreed at the time, provided that in default of agreement the price would be determined by an expert. The price (the "Price") was to be the value that the expert certified in his opinion to be the fair market value of the shares based upon various listed assumptions. The first of those assumptions was that the shares were to be valued as that proportion of the fair market value of the entire issued share capital of the Company that the shares bore to the total issued share capital of the company as at 7 September 2002, with no premium or discount for the size of the petitioner's shareholding.
In due course an expert was appointed pursuant to the mechanism provided for by the order, being a partner in the firm of Haines Watts Chartered Accountants. The relevant provision under which he was appointed included a power for the expert to "retain further independent experts as the expert may consider that he reasonably requires to provide any necessary valuations for particular assets of the company in order for the expert to produce his decision on Price." The valuation followed dated 2 November 2015. For ease of reference I shall refer to the valuation as the "Haines Watts' valuation" or the "Haines Watts' report". Mr Crowley had been anticipating a value for his shares in the region of £1.5 million. The Haines Watts valuation placed a value on them of £417,000. Mr Crowley was, and is, naturally disappointed. The form of order provided for the valuation to be carried out under the court's supervision according to the provisions of the schedule to the order. Paragraph 11 of that schedule provided as follows:
"11: The expert shall act as expert and not arbitrator. The expert's written decision (the "expert decision") on the price, or his decisions in respect of the matters set out in paragraph 10 above [I interpose to say that paragraph 10 dealt with costs] shall be final and binding on the parties in the absence of manifest error or fraud."
Mr Crowley's own accountant, Mr Mark Brooker, MSB Accounting Limited, engaged with the Haines Watts' Report in writing and made various comments on it. That correspondence was sent to Haines Watts by Mr Crowley's then solicitors. Haines Watts replied, and, as I shall explain, their replies are relevant to the application now before me. Mr Crowley then instructed Bishop Fleming LLP, Chartered Accountants. Mr Godfrey and Mr Hawkes of that firm have prepared an expert report which is in evidence before me. For convenience, I shall refer to it as the "Bishop Fleming report". That report is a useful way of setting out the case as to the manifest errors said to have been made by Haines Watts. However, as Mr Bromilow, acting for the Respondents, points out, to the extent that the Bishop Fleming report itself descends to expert evidence and gives simply a different expert view to that of Haines Watts, it is an unpromising basis for saying that the Haines Watts' view is manifestly wrong as opposed to simply different.
In reliance on the matters identified in the report of Bishop Fleming, Mr Crowley launched the application now before me by application notice dated 2 February 2016 and issued on 3 February. By that application he seeks an order and declaration that the determination set out in the Haines Watts' report is not binding on the parties and/or is of no effect on the grounds of manifest error and that the price of his shares should be re-determined. The application was heard for just over half a day on 16 February 2016. Judgment has been delayed until now because of the unavailability of counsel. Before me, Mr Mark Watson-Gandy appeared for Mr Crowley and Mr Daniel Bromilow appeared for Messrs Bessell and Giles. Neither counsel had appeared on the original trial of the Section 994 Petition. I am grateful to both of them for their assistance in this case.
The Bishop Fleming report, as I have said, conveniently sets out the respects in which it is said that the Haines Watts report contains manifest errors. Essentially there are said to be four.
First, it is said that the Haines Watts' report relied on the business appraisal and valuation reports prepared by Pinders Professional & Consultancy Services Limited, which I shall refer to as the "Pinders' reports". In ascribing a value to various freehold properties, it is said wrongly that the Haines Watts' report did not rely upon the Pinders' valuation of the freehold properties as businesses, but instead adopted their own valuation of the businesses.
Secondly, it is said that the Haines Watts' report made a manifest error in ascribing no value to the planning permission which existed in respect of one of the freehold properties in question.
Thirdly, it is said that there was a manifest error in ascribing a value to those properties in that Haines Watts reduced the valuation to take account of the CGT charge which would arise were the properties to be disposed of.
Fourthly, and finally, it is said that there was a manifest error in that the Haines Watts' valuation involved the omission of goodwill in the Company's accounts, it is said correctly, but not the figure for goodwill in the accounts of its wholly owned subsidiary, Rowles House Limited.
The applicable law as to what amounts to a manifest error and what material the court takes into account was effectively agreed. I was referred to a number of cases. In the area of expert determination, they included: Heald Foods Limited v Hyde Dairies, a decision of Potter J on 1 December 1994; Galaxy Energy International Limited (BVI) v Eurobunker SpA [2001] 2 LR 725; Invensys plc v Automotive Sealing Systems Ltd [2002] 1 All ER Comm 222; and the decision of Peter Smith J in Walton Homes Limited v Staffordshire County Council [2013] EWHC 2554 Ch in relation to which leave to appeal was refused by Kitchin LJ, reported as [2014] EWCA Civ 696.
As regards the ability to set aside determinations by experts, one line of authority deals with the position where the expert has failed to follow his instructions. That is not said to be the case here. Nor is this a case of alleged fraud. The only ground of attack therefore is that of manifest error. As the Walton Homes case helpfully summarises, the courts have used a number of descriptive terms to encompass this concept. As Peter Smith J said, picking up his judgment halfway through paragraph 7 in the Walton Homes case:
"7. … It is insufficient for the present application if the Decision is arguably wrong and it is even insufficient if the decision is wrong providing it was in accordance with his instructions and does not contain any manifest error. The circumstances when a determination by an expert can be challenged are tightly circumscribed (per Potter J in Heald Foods Ltd v Hyde Dairies Ltd 112/94 and the Court of Appeal 6/12/96 see Cadogan Petroleum Plc & ors v Tolley & ors [2009] EWHC 3291 Ch at paragraph 31).
8. The hurdle of opening the door in the case of a manifest error is even more tightly circumscribed.
9. In Lindley & Banks on Partnership (paragraph 10–73) the learned authors expressed a view as to what manifest was and it has long been said in previous editions of Lindley that manifest errors "applies only to errors in figures and obvious blunders, not to errors in judgment, e.g. in treating as good debts which ultimately turn out to be bad, or in omitting losses not known to have occurred. All errors are manifest when discovered; but such clauses as those referred to here are intended to be confined to oversights and blunders so obvious as to admit no difference of opinion"..
10. That sentence was cited for approval by Potter J in the Heald Foods Limited case above.
"11. In Veba Oil Supply & Trading Gmbh v Petrotrade Inc [2001] EWCA Civ 1832 Simon Brown LJ as he then was echoed the observations of Lindley as set out below … (and Peter Smith J then cites paragraphs 30 to 35 of that judgment).
"12. Finally Sir Kim Lewison's book Interpretation of Contracts (chapter 18 section 7) adds some observations on manifest error as follows:-
"Some clauses permit a challenge on the ground of "manifest error". In Conoco (UK) Ltd v Phillips Petroleum (UK) Ltd Morison J said that a "manifest error" referred to "oversights and blunders so obvious as to admit of no difference of opinion". In IIG Capital LLC v Van Der Merwe Lewison J said that:
"A manifest error" is one that is obvious or easily demonstrable without extensive investigation."
"If the mistake is obvious then it may be that it does not also need to...
To continue reading
Request your trial