Court of Appeal sets aside expert’s share valuation for failure to follow his mandate

The Court of Appeal has provided useful guidance to accountants (and lawyers) on applications to set aside expert valuations. Ms Begum issued a s994 of the Companies Act 2006 claim against her business partner, Ms Hossain in 2009. Together they had owned an Indian restaurant. In 2011 the parties agreed to settle their differences and Ms Hossain was to buy out Ms Begum’s shareholding at a price to be determined by an independent valuer. The terms of their settlement were incorporated in a Tomlin Order, which gave the valuer a clear mandate on how to value the shares.

The usual rule is that a jointly appointed expert’s ruling is binding upon the parties because the parties have agreed to the scope of his instruction and the agreement is a matter of contract.

In this case, the expert had been instructed to value the shares based upon both the statutory accounts and a separate handwritten account of takings. The expert departed from this instruction and based his valuation solely upon the statutory accounts and indicated a further valuation may be necessary to investigate the handwritten accounts as he had not been appointed as a forensic accountant and it was beyond his remit. This was despite having authority to “seek the assistance of other professionals at his sole discretion”.

The Court of Appeal summarised the existing case law as follows:

1. A mistake is made when an expert goes wrong in the course of carrying out his instructions¹.
2. If an expert makes a mistake whilst carrying out his instructions, the parties are nevertheless bound by it for the good reason they have agreed to be bound by it².
3. [If] the expert departs from his instructions, the position is very different: … the parties have not agreed to be bound.
4. Once a material departure from instructions is established … the determination in those circumstances is simply not binding on the parties³.

The Court of Appeal construed the Tomlin Order to mean that the expert is required to arrive at his valuation by considering all the content of the documents, not simply some of them. If he needed the assistance of a forensic accountant, he could have obtained it at the parties’ expense. Therefore, he did not follow the mandate and the valuation was set aside.

Ironically, if he had not had provided reasons for his valuation, which he was not obliged to do, it is likely that the valuation would have stood. Further, if he had simply made a mistake, the parties would have been bound by the valuation.

A lesson to us all – follow the instructions.

Experts in commercial or business dispute resolution

Sarah Jackson is a senior solicitor at IBB and a specialist in Companies Act litigation.

If your business is facing the challenge of a commercial dispute or litigation, IBB Solicitors can help. Call us today on 01895 207954 or email commercialdisputes@ibblaw.co.uk.

References

Case: Begum v Hossain [2015] EWCA Civ 717

[1] Veba Oil Supply & Trading GmbH v Petrotrade Inc [2001] EWCA Civ 1832

[2]Campbell v Edwards [1976] 1 W.L.R. 403

[3] Per Dillon LJ, Jones v Sherwood Computer Services [1992] 1 W.L.R 277