Arenson v Arenson

JurisdictionEngland & Wales
JudgeLord Simon of Glaisdale,Lord Wheatley,Lord Kilbrandon,Lord Salmon,Lord Fraser of Tulleybelton
Judgment Date11 November 1975
Judgment citation (vLex)[1975] UKHL J1111-1
Date11 November 1975
CourtHouse of Lords
Arenson
(Appellant)
and
Casson Beckman Rutley & Co.
(Respondents)

[1975] UKHL J1111-1

Lord Simon of Glaisdale

Lord Wheatley

Lord Kilbrandon

Lord Salmon

Lord Fraser of Tulleybelton

House of Lords

Upon Report from the Appellate Committee, to whom was referred the Cause Arenson against Casson Beckman Rutley & Co., That the Committee had heard Counsel, as well on Monday the 14th, as on Tuesday the 15th, Wednesday the 16th and Thursday the 17th days of July last, upon the Petition and Appeal of Ivor Gerald Arenson of 14 Cissbury Ring South, London, N.12, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 9th of July 1973, so far as regards the words: " AND on the said Appeal THIS COURT BEING OF OPINION that the said Statement of Claim disclosed no reasonable cause of action against the Defendants Casson Beckman Rutley & Co." and also so far as regards the words: " AND IT IS ORDERED that the costs of the Defendants Casson Beckman Rutley & Co. (1) of the Application below to strike out the said Statement of Claim and dismiss the Action as against them (2) of the said Motion for leave to Appeal (3) of and occasioned by the said Appeal and (4) of and occasioned by the said amendment of the Statement of Claim be borne by the Plaintiff in any event" might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, so far as aforesaid, might be reversed, varied or altered, and that the Petitioner might have the relief prayed for in the Appeal, or such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament, might seem meet: as also upon the Case of Casson Beckman Rutley & Co., lodged in answer to the said Appeal: and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lord Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 9th day of July 1973, in part complained of in the said Appeal, be, and the same is hereby. Discharged, and that the Cause be, and the same is hereby, Remitted back to the Chancery Division of the High Court of Justice with a Declaration that the Appellant's unamended statement of claim did disclose a reasonable cause of action against the Respondents: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellant his Costs in this House in any event, the amount thereof to be certified at the appropriate time by the Clerk of the Parliaments: And it is also further Ordered, That the Costs incurred by the Appellant in the Courts below in the Interlocutory Application referred to in the Schedule to the Petition of Appeal be Costs in the Cause.

Lord Simon of Glaisdale

My Lords,

1

The question in this appeal is whether an accountant/auditor of a private company who on request values shares in the company in the knowledge that his valuation is to determine the price to be paid for the shares under a contract for their sale is liable to be sued if he makes his valuation negligently.

2

The first defendant, Archy Arenson (who has taken no part in the proceedings which have led to the instant appeal), was the controlling shareholder and chairman of a private company, A. Arenson Limited. He took his nephew, Ivor Arenson, the plaintiff in this action and the appellant before your Lordships, into the business; and Archy Arenson and his wife gave the appellant a parcel of shares in the company. By two documents ("the contract letters") dated 18th March 1964 and 1st October 1968 the appellant agreed with the first defendant ( inter alia) as follows, the terms being common to both letters:

"5. In the event of my employment with the Company terminating for whatsoever reason, I will offer to sell my Shares to Mr. Arenson [the first defendant] and it is agreed that he will purchase them from me at the Fair Value …"

"6. 'Fair Value' shall mean in relation to the Shares in A. Arenson Limited, the value thereof as determined by the auditors for the time being of the Company whose valuation acting as experts and not as arbitrators shall be final and binding on all parties."

3

The respondents to this appeal, a firm of chartered accountants, were at all material times the auditors of the company. They are the second defendants in the action.

4

On 4th April 1970 the appellant's employment by the company ceased. It appears that the secretary of the company thereupon orally requested the respondents to value the appellant's shares (though the detailed terms of this communication are not before your Lordships). The respondents replied to the company secretary by letter dated 13th May 1970, referring to the contract letters, and giving the "fair value" of the shares as £4,916. 13s.4d. On 11th June 1970, in reliance on that valuation, the plaintiff transferred his shares to the first defendant and received payment of £4,916. 13s.4d.

5

A few months later the company "went public", the transaction involving a report by the respondents. The appellant alleges that the transaction showed that the shares which he had sold were worth six times their value as assessed by the respondents. In consequence, on 19th August 1971, the appellant brought the action from which this appeal arises. Alleging that the said "valuation was misconceived and erroneous in one or more fundamental respects and was made on a wrong basis or wrong bases," he in effect claimed from the first defendant the difference between what he had been paid for the shares and the sixfold sum which he asserts was their true value. Further or in the alternative, the appellant claimed damages from the respondents, alleging that they "were negligent in making the said valuation".

6

By summons dated 21st October 1971 the respondents applied for an order, under R.S.C. Ord. 18, r. 19 and the inherent jurisdiction of the court, that the statement of claim should be struck out and the action dismissed as against themselves (the respondents), on the ground that the statement of claim disclosed no reasonable cause of action against them. The matter was adjourned to Brightman J., who delivered a reserved judgment ( [1972] 1 W.L.R. 1196). He held that a clear line of authority ( Pappa v. Rose (1871) L.R. 7 C.P.32, (1872) L.R. 7 C.P.525; Tharsis Sulphur and Copper Co. Ltd. v. Loftus (1872) L.R. 8 C.P. 1; Stevenson v. Watson (1879) 4 C.P.D. 148; Chambers v. Goldthorpe [1901] 1 K.B. 624; Boynton v. Richardson's [1924] W.N. 262; Finnegan v. Allen [1943] K.B. 425) established a principle whereby the appellant's claim against the respondents was misconceived and bound to fail. Brightman J. stated the principle as follows (p. 1205H):

"… where a person (though not an arbitrator) is in the position of an arbitrator, with a duty to hold the scales evenly between two other parties for the purposes of resolving by the exercise of his own judgment a matter that is not agreed between them, it is not expedient that the law should entertain an action against the opinion-giver alleging an error, whether negligent or not."

7

I shall presume to call this "Brightman J.'s formulation". Although he did not use the term expressly, it is apparent that the learned judge considered the rule to be one of public policy.

8

The appellant appealed to the Court of Appeal. By reserved judgments delivered on 22nd February 1972 they dismissed the appeal, Lord Denning M.R. dissenting ( [1973] Ch. 346). The majority (Buckley L.J. and Sir Seymour Karminski) relied on the same authorities as Brightman J. Buckley L.J. summarised their effect in a passage which I presume to call "Buckley L.J.'s formulation"(p.370G):

"… these authorities establish in a manner binding upon us in this court that, where a third party undertakes the role of deciding as between two other parties a question, the determination of which requires the third part to hold the scales fairly between the opposing interests of the two parties, the third party is immune from an action for negligence in respect of anything done in that role."

9

Later in his judgment (p.371 F-H) Buckley L.J. reformulated the principle in such a way as to elucidate that by "question" he meant "matter in dispute or upon which other parties have opposed interests". A clear distinction in his opinion, was to be drawn between the position of a third party who is required to adjudicate in such a way and one to whom the parties delegate the function of ascertaining some matter of fact. Buckley L.J. held the rule to be based on public policy (p.370H), which, though not precluding a duty from arising, gives immunity from the consequences of its breach (p.368H–369B). Sir Seymour Karminski delivered a short concurring judgment.

10

It will be noted that there is some difference between Brightman J.'s and Buckley L.J.'s formulations. Buckley L.J.'s as elucidated involves either "a dispute" or "opposed interests"; while Brightman J.'s goes no further than "a matter which is not agreed between them". Buckley L.J.'s formulation was approved by my noble and learned friend, Lord Salmon, in ( Sutcliffe v. Thackrah [1974] A.C. 727, 764, D-G) as an accurate distillation of the authorities relied on; though he disapproved of the reasoning of these authorities and of Buckley L.J.'s resultant formulation of principle.

11

Apparently it had been suggested to the Court of Appeal (though not to Brightman J.) that the statement of claim might be so amended as to preclude the drastic expedient of striking out. The Court of Appeal was willing to consider such an application on production of a draft of the proposed amendment. This was produced on 9th July 1973, when the Court of Appeal gave leave to amend. The Court of Appeal's order of that date in effect: (1) declared that the...

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