Baber v Kenwood Manufacturing Company Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MEGAW,LORD JUSTICE LAWTON,SIR DAVID CAIRNS |
| Judgment Date | 14 July 1977 |
| Judgment citation (vLex) | [1977] EWCA Civ J0714-3 |
| Date | 14 July 1977 |
| Court | Court of Appeal (Civil Division) |
[1977] EWCA Civ J0714-3
In The Supreme Court of Judicature
The Court of Appeal
(Civil Division)
(Appeal from Order of Mr. Justice Goulding - London)
Lord Justice Megaw
Lord Justice Lawton and
Sir David Cairns
Mr. HUGH FRANCIS, Q.C. and Mr. DAVID R. STANFORD (instructed by Messrs. Reed & Reed) appeared on behalf of the Appellant (Plaintiff).
Mr. DAVID KEMP, Q.C. and Mr. ANDREW LONGMORE (instructed by Messrs. Rowe & Maw) appeared on behalf of the Respondents (First Defendants).
By a writ issued on 21st May, 1976, the plaintiff, Mr. Albert George Baber, made claims against the two defendants. Under a contract between the plaintiff and the first defendants, Kenwood Manufacturing Company Limited, 2,400 shares which the plaintiff owned in a company called Millway Engineering Limited were to be sold to the first defendants. By a term of the contract, in default of agreement between the parties the price of the shares was to be the price certified by the auditors of Millway Engineering Limited. as being in their opinion the fair selling value. The auditors at the relevant time were Whinney Murray & Company, a firm of chartered accountants who are the second defendants. They, on 16th September, 1974, certified the value of the 2,400 shares as being £36,436. The certificate gave no reason for that valuation. The plaintiff objects to that valuation. He contends that it is too small and that there were mistakes in the manner of its assessment. There is no suggestion of any fraud or collusion on the part of either of the defendants.
The plaintiff's statement of claim is a detailed and lengthy document. It is not necessary to refer to more than a few paragraphs of it. Paragraph 7 says that by clause 3 of the agreement the price of the shares was to be in accordance with the Articles of Association of the company (Millway Engineering Limited).
Paragraph 14 sets out the relevant Article of Association, Article 7 paragraph (2), as follows:
"'(2) A transfer notice shall constitute the Directors the vendor's agents for the sale in manner provided by this Article of the shares to which the transfer notice relates at a price to be agreed upon by the vendor and the Directors or in default of agreement at a price which the Auditors for the time being of the. Company shall certify in writing to be in their opinion the fair selling"'value thereof calculated as herein provided and in so certifying the said Auditors shall he considered to he acting as experts and not as arbitrators. The fair selling value shall he the fraction of the fair selling value of all the issued shares of the same class of the Company as between a willing vendor and a willing purchaser that the shares to which the transfer notice relates are of the whole issued shares of the same class'".
In paragraph 15 it is said agreement was not reached "between the plaintiff and the first defendants as to the price. So it fell to the second defendants to certify the value.
Paragraph 29 sets out the valuation. The paragraph reads:
"29. Without any discussion with the Plaintiff or receipt of further contentions "by the First Defendant the Second Defendants purported on 16th September 1974 to give their formal valuation of the shares by certificate in the following terms:- 'In our opinion the fair selling value of all the issued shares (11,000 shares) of Millway Engineering Limited at 30th September 1973 calculated as provided in the Articles of Association, was £167,000. Thus in accordance with the said Articles, we value a holding of 2,1+00 shares at that date at £36,436'".
Paragraph 37 attacks the valuation. It reads as follows: "37.
The said valuation made by the Second Defendants was not a proper valuation in accordance with the relevant provisions of the Agreement (namely Clauses 3 and 5 thereof) and the Articles of the Company (namely Article 7 (2) thereof) in that the same was vitiated by fundamental errors of principle in that the Second Defendants: (i) omitted to obtain any or any proper or sufficient valuation of the plant and machinery of the company, (ii) acted upon an inaccurate record namely the Plant Audit in ascertaining the value of the plant and machinery of the Company, (iii) failed to take into account the break-up value of the Company in valuing its entire"share capital, (iv) failed to value the shares in accordance with the provisions of the said Article 7 (2)".
Paragraph 38 draws the conclusion of law that the valuation is not "binding on the plaintiff.
Paragraph 41 introduces the claim in tort against the second defendants. It avers that the second defendants owed a duty to the plaintiff and to the first defendants to exercise all proper care and skill in preparing the valuation;"but they were negligent. Paragraph 37 is repeated as providing particulars of negligence.
The relief claimed against the first defendants is three-fold:
(i) A declaration that the valuation is invalid and not "binding on the parties for the purposes of the Agreement.
(ii) Directions as to the manner in which a fresh valuation of the shares should be obtained.
(iii) Specific performance of the Agreement.
The relief claimed against the second defendants is damaged, varying according as the plaintiff is or is not entitled to the relief sought by him against the first defendants.
The second defendants wholly deny the plaintiff's allegations of negligence against them.
The first defendants applied under Rules of the Supreme Court Order 18 Rule 19 for an order striking out the statement of claim as against them on the ground that it disclosed no reasonable cause of action against them and that the action as against them be dismissed. On such an application no evidence is admissible. It has to be assumed for the purposes of the decision of the application, in favour of the plaintiff and against the first defendants, that the facts as pleaded in the statement of claim are correctly stated. On that assumption, the first defendants have to show that, as a matter of law, there is no reasonable cause of action. The second defendants, we are told, did not desire to be heard on theApplication.
Mr. Justice Goulding, on 22nd February, 1977, decided the application in favour of the first defendants. By his order he struck out the statement of claim as against the first defendants, and in consequence, since it could not be suggested for the plaintiff that any amendment could preserve the claim, the learned Judge dismissed the action as against the first defendants. He did so because he accepted the argument put to him on behalf of the first defendants, that, whatever the law may have been, or may have been thought to be, before the decision in Campbell v. Edwards (1976) 1 Weekly Law Reports 403, the ratio decidendi of that case applied to the present case. No valid distinction could be drawn. Campbell v. Edwards, being applicable and being a decision of this Court, was binding on the learned judge. It was thus conclusive in favour of the first defendants. The statement of claim thus disclosed no reasonable cause of action against the first defendants. Even if a valuer has made a mistake, the parties to a contract containing a term such as the relevant term in the present case are bound by the valuation, made honestly and in good faith.
The plaintiff appealed to this Court. In his grounds of appeal it was contended that Campbell v. Edwards was distinguishable; alternatively, that, if it was not distinguishable, it was wrongly decided. This, at first sight bold, alternative proposition, that one division of this Court could be invited to overrule an indistinguishable decision of another division of this Court, where none of the special exceptions of Young v. Bristol Aeroplane Co. (1944) King's Bench 718 applies, would become, at least, less startling because of the fact that Campbell v. Edwards was decided by a division of the Court consisting of two judges, Lord Denning, Master of the Rolls, and Lord Justice Geoffrey Lane. The Supreme Court of Judicature (Consolidation) Act, 1925, section 68 (1),provides that the normal composition of the court shall "be not less than three judges; but where the appeal is against an interlocutory order or judgment it shall "be heard before not less than two Judges of that Court". Campbell v. Edwards was an appeal against an order or judgment which was, technically, interlocutory. (The whole question of final or interlocutory orders or judgments is riddled with technicalities). At any rate, Campbell v. Edwards was correctly heard by a court of two judges. The present appeal is a 130, technically, an appeal against an interlocutory order or judgment. But it has, as it befell, been heard by a court of three judges.
In these circumstances, this appeal gave rise to curious and difficult procedural questions, which threatened to involve the parties in unfortunate delay and possible additional expense. Since the issue raised by the first defendants' application was whether the statement of claim disclosed any reasonable cause of action against them, in the ordinary way the judge at first instance, and this Court on an appeal, would have to determine, not whether the plaintiff's claim is likely to succeed, but whether it is fairly arguable. So far as Mr. Justice Goulding was concerned, since it was clear to him that Campbell v. Edwards was conclusive against the plaintiff in respect of his claim against the first defendants, his correct course was to strike out the statement of claim. But it might be contended that on the appeal this Court is not bound by Campbell v. Edwards. Such a proposition would find at least some support as a...
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