Crowe v TFP Ltd & Ors

On an application for permission to appeal, permission should be granted only where the proposed appeal has a real prospect of success. A valuation ordered in unfair-prejudice proceedings will not justify permission where the trial judge made findings open to him on the evidence and adopted assumptions within the permissible evidential range.

Where experts agree the valuation methodology and multiplier, disagreement with the judge’s assessment of maintainable profits, growth and margins will not ordinarily establish a real prospect of success. Evidence available at trial, but not adduced because it was not considered relevant, is unlikely to provide a basis for an appeal.

The claimant, a shareholder in TFP Ltd, obtained an order under section 459 of the Companies Act 1985 requiring Michael Hearn to purchase his shares. The High Court valued the shares at £233,100, after valuing the company as a continuing profitable business on the counterfactual basis that the unfairly prejudicial conduct had not occurred.

Mr Hearn did not challenge the buy-out order itself. He sought permission to appeal against the price, challenging the assumptions concerning the company’s continued PIA membership, future growth, valuation date, maintainable profits and gross profit margin. The central issue was whether those challenges gave the proposed appeal a real prospect of success.

Disposition. Chadwick LJ gave the first judgment, with which Peter Gibson LJ agreed. The application for permission to appeal was refused.

1. Applicable test. Permission to appeal should be granted unless the court is satisfied that the proposed appeal has no real prospect of success. The Court applied that test to each ground advanced against the valuation.
2. PIA membership and continued trading. The judge was entitled to find that lack of capital resources, and not any separate management defect, caused the withdrawal of the company’s application for PIA membership. There was no sufficient evidence that the PIA would have refused membership if the capital adequacy requirement had been met. A report available at trial but not produced because it was not thought relevant offered no real prospect of being admitted on appeal.
3. Growth assumption. The judge was entitled to adopt a 20 per cent annual growth rate. He had balanced the expert evidence that 25 per cent would be conservative against Mr Hearn’s contention that the figure was too high. The resulting assumption was within the range open to him.
4. Valuation date and delay. Since there had been no earlier offer to purchase the shares, valuation at the trial date was appropriate on the basis of a willing purchaser. The petition was not solely concerned with valuation, and there was no undue delay for which the claimant was responsible.
5. Gross profit margin. The judge was entitled to use a 19 per cent margin when calculating maintainable pre-tax profits. The experts’ evidence supported a higher figure, and Mr Hearn’s own contemporaneous representation to FIMBRA supported the conclusion that the margin was not limited to the 15 per cent paid by IFAs.

None of the grounds had a real prospect of success. The application was therefore refused.

• Court of Appeal (Civil Division): On 8 February 2001, the Court refused Mr Hearn’s adjourned application for permission to appeal against the High Court’s valuation order: [2001] EWCA Civ 253.
• High Court (Companies Court): On 31 July 2000, Mr Nicholas Warren QC, sitting as a Deputy Judge, ordered Mr Hearn to purchase Mr Crowe’s shares for £225,800. The amount was varied on 8 August 2000 to £233,100, with the amended judgment issued on 17 August 2000.