Eastern Motor Company Ltd v Grassick
| Jurisdiction | Scotland |
| Judge | Lord Tyre |
| Judgment Date | 17 December 2021 |
| Court | Court of Session (Inner House) |
| Docket Number | No 9 |
First Division
Lord Tyre
Amey Birmingham Highways Ltd v Birmingham City Council [2018] EWCA Civ 264; [2018] BLR 225; [2018] CILL 4105
Arnold v Britton [2015] UKSC 36; [2015] AC 1619; [2015] 2 WLR 1593; [2016] 1 All ER 1; [2015] HLR 31; [2015] 2 P & CR 14; [2015] L & TR 25; [2015] CILL 3689
Barclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] 1 All ER (Comm) 912; [2012] Bus LR 542; [2011] 2 Lloyd's Rep 347; [2014] 2 CLC 469; [2011] BLR 614
Campbell v Edwards [1976] 1 WLR 403; [1976] 1 All ER 785; [1976] 1 Lloyd's Rep 522
Carillion Utility Services Ltd v SP Power Systems Ltd [2011] CSOH 139; 2012 SLT 119; [2012] BLR 186; 2011 GWD 27-599
Cavendish Pharmacies Ltd v Stephensons Ltd 1998 SLT (Sh Ct) 66
Donald v Donald 1913 SC 274; (1912) 2 SLT 436
Jones v Sherwood Computer Services plc [1992] 1 WLR 277; [1992] 2 All ER 170; [1989] EG 172 (CS)
Kelly v Kelly 1986 SLT 101
Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179; [2008] Eu LR 191
Mercury Communications Ltd v Director General of Telecommunications [1994] CLC 1125; [1998] Masons CLR Rep 2
Oswald v Fairs 1911 SC 257; 1911 1 SLT 114
Redding Park Development Co Ltd v Falkirk Council [2011] CSOH 202; 2012 GWD 2-16
SGL Carbon Fibers Ltd v RBG Ltd [2011] CSOH 62; 2011 SLT 417; 2011 SCLR 386
Vaughan Engineering Ltd v Hinkins and Frewin Ltd 2003 SLT 428
Veba Oil Supply and Trading GmbH v Petrotrade Inc (‘The Robin’) [2001] EWCA Civ 1832; [2002] 1 All ER 703; [2002] 1 All ER (Comm) 306; [2002] 1 Lloyd's Rep 295; [2002] CLC 405; [2002] BLR 54
Walton Homes Ltd v Staffordshire County Council [2013] EWHC 2554; [2014] 1 P & CR 10; [2013] 42 EG 125 (CS)
Contract — Expert determination — Whether expert's determination vitiated by departure from instructions or manifest error
Process — Reduction — Competency of defence of reduction ope exceptionis — Whether reduction of expert's determination could be brought only by petition for judicial review
Process — Reduction — Whether it was competent to give effect to defence of reduction ope exceptionis by granting decree of reduction
Eastern Motor co ltd brought an action under the commercial cause rules (Act of Sederunt (Rules of the Court of Session 1994) 1994 (SI 1994/1443 (S 69)), Ch 47) in the Court of Session against Colin Donald Grassick and others seeking declarator that the determination of an expert was binding on the parties and for an order requiring the defenders to instruct a bank to release certain payments from a retention account. The action called for proof before the commercial judge (Lord Tyre). On 26 January 2021, the commercial judge granted decree ([2021] CSOH 5). The defenders reclaimed.
The defenders agreed to sell the entire issued share capital of a limited company that operated a motorcar dealership to the pursuers. Part of the purchase price was to be ascertained by means of the preparation of a balance sheet of the company as at the close of business on 30 June 2017. The sum of £250,000 was paid by the pursuers into a retention account with a bank pending agreement or expert determination of the balance sheet. A dispute arose in relation to the method of valuation to be adopted and the date of data to be used in determining the value of certain assets. The matter was referred to an expert for determination. The defenders refused to accept the expert's determination on certain issues and so refused to settle the sale on the basis of the expert's determination.
The pursuers raised an action seeking declarator that the expert's determination was binding on the parties and an order requiring the defenders to instruct the bank to release to the pursuers £158,068 and accrued interest from the retention account and to pay the balance of £91,932 to the defenders.
The defenders lodged defences seeking reduction of the expert's determination ope exceptionis on the basis that the expert had failed to comply with the instructions and made manifest errors. The pursuers contended that the challenge to the expert's determination could only be brought competently by petition for judicial review.
Following proof, the commercial judge granted decree in favour of the pursuers, but rejected the pursuers' challenge to the competency of the defence based on reduction ope exceptionis. The defenders reclaimed.
Held that: (1) the expert's determination would be open to challenge if he had departed from his instructions in some material way such that he had not done what the parties had agreed that he was appointed to do (paras 38–40); (2) for an error to be manifest, it required to be a glaring mistake that jumped off the page and a mere difference of opinion was insufficient (para 41); (3) the expert had not departed from his instructions to any material extent and his decision disclosed no manifest error so the challenges to his decision had no merit (paras 42–44); and reclaiming motion refused.
Observed that the court had the power to reduce the expert's determination ope exceptionis and there was no need for the challenge to the validity of the expert's determination to be brought by way of separate proceedings for judicial review. Whether to exercise the power to reduce ope exceptionis was a matter for judicial discretion, but this was not a case where the expert had to be allowed an opportunity to become a party to the proceedings (eg to defend allegations of misconduct or impropriety). There was no remedy of setting aside or refusing to enforce a document. Accordingly, contrary to the view of the commercial judge, if he had been persuaded that grounds for reduction of the expert's determination had been established and that it was appropriate in the whole circumstances of the case to do so, it would have been open to him to have granted decree reducing the expert's determination (paras 63, 64).
Vaughan Engineering Ltd v Hinkins and Frewin Ltd 2003 SLT 428 disapproved.
The cause called before the First Division, comprising the Lord President (Carloway), Lord Woolman and Lord Pentland, for a hearing on the summar roll, on 30 November 2021.
At advising, on 17 December 2021, the opinion of the Court was delivered by Lord Pentland—
Opinion of the Court—
[1] This reclaiming motion (appeal) raises two questions. The first concerns the circumstances in which the Court of Session is entitled to interfere with the decision of an expert appointed under a contractual dispute resolution procedure, where parties have agreed to be bound by the expert's determination. The second relates to the competency of challenging the decision of such an expert ope exceptionis (literally ‘by force of exception’) in the defences to the action to enforce the expert's decision. The pursuers, who seek to enforce the expert's decision, contend that the defenders' challenges to the expert's determination could competently have been brought only by an application for judicial review.
[2] On 1 August 2017 the parties entered into a share purchase agreement for the sale by the defenders to the pursuers of the entire issued share capital of Grassick's Garage Ltd. Grassick's principal business was owning and operating a BMW and Mini motorcar franchise dealership in Perth.
[3] The agreed sale price was to be the ordinary share consideration, which was defined in the agreement as being the aggregate of four elements. The relevant element for the purposes of this case is the ‘actual net asset value’. The actual net asset value was to be ascertained by means of the preparation of completion accounts; these were defined as meaning the balance sheet of the company as at close of business on 30 June 2017. That date was referred to in the agreement as the ‘locked box date’. The sum of £250,000 was paid by the pursuers into a retention account with the Royal Bank of Scotland pending agreement or expert determination of the completion accounts.
[4] Paragraph 6.1 of Pt 7 of the schedule to the share purchase agreement provided as follows:
‘The Completion Accounts will be prepared in accordance with, and in the order shown below:
(a) the specific accounting policies set out in Section D of this Part 7 of the Schedule;
(b) to the extent not inconsistent with paragraph 6.1(a), using the same accounting principles, policies, practices, evaluation rules and procedures, methods and bases, (including in respect of the exercise of management judgment) adopted by the Accounts (Accounting Policies), applied on a consistent basis (but only to the extent that the Accounting Policies are in accordance with UK generally accepted accounting practices as at the Locked Box Date); and
(c) to the extent not inconsistent with paragraphs 6.1(a) and/or 6.1(b), in accordance with UK generally accepted accounting practice as at the Locked Box Date.’
[5] The ‘specific accounting policies’ set out in sec D of Pt 7 included the following in para 15:
‘Used Vehicle Stock
Retailable used vehicle stock will be valued in line with current motor trade valuation. Therefore used vehicle stock at the Locked Box Date will be valued in accordance with prevailing CAP clean values on CAP Valuation Anywhere. If a vehicle does not appear in CAP the values will be determined by agreement between the Seller's Representative and the Buyer. Non retailable used vehicle stock (Trade Stock) is expected to be at a minimum. Trade vehicles will be valued at a realistic trade value to be agreed between the Sellers [sic] Representative and the Buyer. It is recognised that CAP is not necessarily the best measure of a trade vehicle's value.’
[6] CAP Valuation Anywhere is a subscription website widely consulted in the motor trade. It provides valuations (revised monthly) for a wide range of cars of different registration dates.
[7] The agreement provided that the draft completion accounts were to be...
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