Premier Telecom Communications Group Ltd and Another (Claimants/Appellants) v Darren John Webb
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lord Justice McFarlane,Lord Justice Floyd |
| Judgment Date | 16 July 2014 |
| Neutral Citation | [2014] EWCA Civ 994 |
| Docket Number | Case No: A2/2014/0190 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 July 2014 |
[2014] EWCA Civ 994
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BRISTOL DISTRICT REGISTRY
MERCANTILE COURT
His Honour Judge Havelock-Allan Q.C.
3BS40220
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Moore-Bick
Lord Justice McFarlane
and
Lord Justice Floyd
Case No: A2/2014/0190
Mr. Christopher Harrison (instructed by Burges Salmon LLP) for the appellants
Mr. Edmund Nourse (instructed by Shoosmiths LLP) for the respondent
Hearing date: 24 th June 2014
Background
This is an appeal from the order of His Honour Judge Havelock-Allan Q.C., the Mercantile Judge at Bristol, giving judgment for the defendant, Mr. Webb, under Part 24 of the Civil Procedure Rules against the claimants, Premier Telecom Communications Group Ltd ("PTCG" or "the company") and Mr. Ridge.
PTCG is a successful private company, 60% of whose shares are owned by Mr. Ridge and 40% by Mr. Webb. The success of its operations depends heavily on personal relationships built up between Mr. Ridge and senior representatives of various companies with which it does business. It is an unusual feature of the business that Mr. Ridge himself has no contract with PTCG or its subsidiary and the group has no contractual relationships with most of its principal business partners. Everything depends on trust and good working relationships.
Mr. Webb was a director of PTGC and was employed by it until October 2011, when there was a parting of the ways. He was accused of misconduct and his employment was terminated. He asserted that he had been unfairly dismissed, but that was denied and a dispute thus arose between him on the one hand and the company and Mr. Ridge on the other. Mr. Webb began proceedings before the Employment Tribunal and made it clear that he was also thinking of issuing proceedings under section 994 of the Companies Act 2006 on the grounds of unfair prejudice. However, in December 2012 the parties were able to reach agreement and the dispute was compromised on terms, among others, that the company and Mr. Ridge would buy out Mr. Webb's shareholding.
Given the nature of PTCG's business, valuing the shares was not a straightforward task. The parties therefore agreed to delegate it to Grant Thornton acting as expert valuers. On 4 th October Burges Salmon wrote to Grant Thornton on behalf of the appellants to enquire whether they would undertake the task. The solicitors made it clear in the letter that they were seeking to identify a valuer to produce a valuation:
" … to reflect the remedy that might be applied by the courts in an unfair prejudice action of a minority shareholder."
The valuation would therefore:
" … seek to reflect the position which would exist if [Mr. Webb] had successfully brought a claim for unfair prejudice in the High Court."
Grant Thornton accepted the appointment on the terms set out in a letter of engagement dated 4 th December 2012. It included the following provisions:
"You have asked us to undertake a valuation of the shares of PTCG on the following bases:
• Fair value on a pro rata basis, i.e. no discount to reflect a minority shareholding,
• As at 30 th June 2012, unless it is our opinion that attempts have been made to artificially manipulate the value of PTCG, whereby we would be entitled to make such adjustments as we see fit,
•…
In valuing PTCG we will assume that the fair value is equal to the market value, which is defined by the International Valuation Standards Board as:
"the estimated amount for which as asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after a proper marketing and where the parties had acted knowledgeably, prudently and without compulsion."
Further, in performing our valuation we will assume that the relationships in place as at 30 June 2012 continue to exist for the purposes of the valuation; …"
The letter of engagement also provided that, following meetings with the parties, Grant Thornton would produce a Factual Memorandum setting out the facts on which the valuation would be based.
On 21 st March 2013 Grant Thornton produced their report valuing Mr. Webb's shareholding at £4.218 million and explaining how they had arrived at that figure. The report provoked an immediate protest from Burges Salmon on behalf of Mr. Ridge and PTCG which led in due course to the commencement of these proceedings, in which they seek to overturn Grant Thornton's valuation. Mr. Webb's response was to issue an application for summary judgment under CPR Part 24 on the grounds that the claim had no real prospect of success. Judge Havelock-Allan Q.C. granted the application and gave judgment for Mr. Webb dismissing the claim. This is the appeal of PTCG and Mr. Ridge against his decision.
The applicable principles
Having considered the leading authorities on challenging expert valuations, including Jones v Sherwood Computer Services Plc [1992] 1 W.L.R. 403, Nikko Hotels (UK) Ltd v MEPC Plc [1991] 2 EGLR 103, Pontsarn Investments Ltd v Kansallis-Osake-Pankki [1992] 1 EGLR 148, the dissenting judgment of Hoffmann L.J. in Mercury Communications Ltd v Director General of Telecommunications [1994] CLC 1125, Thorne v Courtier [2011] EWCA Civ 460 and Barclays Bank Plc v Nylon Capital LLP [2011] EWCA Civ 826, [2012] Bus. L.R. 542, the judge summarised the relevant principles in paragraph 40 of his judgment as follows:
"40. Drawing the threads of the cases together, it seems to me that they support the following principles:
(1) Where the parties have chosen to resolve an issue by the determination of an expert rather than by litigation or arbitration, the expert's determination is final and binding unless it can be shown that he acted outside his remit.
(2) A distinction must be drawn between the expert who has misunderstood or misapplied his mandate with the consequence that he has not embarked on the exercise which the parties agreed he should undertake, and the expert who has embarked on the right exercise but has made errors in conducting that exercise and has come up with what is arguably the wrong answer.
(3) A failure of the first kind means that the determination is not binding because it is not a determination of the kind that the parties have contractually agreed should be binding.
(4) A failure of the second kind does not invalidate the determination, but may leave the expert exposed to a claim in negligence.
(5) In deciding whether an expert determination can be challenged, the first step is to construe his mandate. This is ultimately a matter for the court.
(6) The second step is to ascertain whether the expert adhered to his mandate and embarked on the exercise he was engaged to conduct by asking himself the right question(s) and applying the correct principles.
(7) Once it is shown that the expert departed from his instructions in a material respect, the court is not concerned with the effect of that departure on the result. The determination is not binding.
(8) Where the expert has made an error on a point of law which is not delegated to him, the error means that the determination will be set aside. (It has yet to be decided whether an error by the expert on any point of law arising in the course of implementing his instructions will also justify setting aside the determination – see Lord Neuberger MR in Barclays Bank v Nylon Capital).
(9) Where a procedure has been laid down (e.g. to produce a draft memorandum) the expert must follow it. However, what the procedure requires the expert to do is an aspect of the mandate, and ultimately a matter for the court."
Mr. Harrison for the appellants did not quarrel with the judge's formulation of the applicable principles and I am content to accept them as a helpful summary. My only reservation concerns the suggestion that an error by the expert on any point of law arising in the course of implementing his instructions might justify setting aside the determination. The judge treated this as an open question on the basis of certain comments made by Lord Neuberger M.R. in Barclays Bank v Nylon Capital. It is necessary to remember, however, that those comments were obiter and that neither of the other members of the court expressed agreement with them. It is possible that the parties might by their agreement define the terms of the expert's mandate in such a way that any error of law on his part rendered his decision invalid, but in many cases to do so would risk undermining the whole purpose of the reference. Ultimately, however, as Lord Denning observed in Campbell v Edwards [1976] 1 W.L.R. 403, 407 (and as Lord Neuberger himself was at pains to emphasise in Barclays Bank v Nylon Capital), it all comes down to the construction of the contract under which the expert was appointed to act. Only by construing the contract can one identify the matters that were referred for his decision, the meaning and effect of any special instructions and the extent to which his decisions on questions of law or mixed fact and law were intended to bind the parties.
Before turning to deal with the arguments advanced by the appellants it is necessary to remind oneself that the application before the judge was for summary judgment. It was therefore necessary for Mr. Webb to establish that the claim had no real prospect of success. The task was somewhat easier in this case than in many, however,...
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