Joiner & Anor v George & Ors

Where contractual damages require a shareholding to be valued at a fixed date, the valuation must proceed from the facts then known. Later trading results do not make an earlier forecast preferable merely because subsequent events show that the forecast was accurate. Future growth may be reflected in the valuation, including through the price-earnings multiple, but it must not be counted twice.

A share valuation involves evaluative judgment. An appellate court will not interfere where the judge has considered the material evidence, given adequate reasons and reached a conclusion within the proper range of judgment.

The claimants exercised an option to acquire 51% of the shares in Unigel UK. The respondents failed to procure the transfer. Park J held that they were in breach of contract, refused specific performance, and directed an inquiry into damages.

In a subsequent judgment dated 28 July 2000, Park J assessed the value of the 51% holding on 23 November 1994 at £129,000. He adopted a capitalised-earnings valuation. He used recent trading figures, allowed a 2.5% licence fee for use of the UNIGEL name, and rejected a valuation based on later trading results and projected growth.

The claimants appealed against the amount of damages. They challenged the treatment of hindsight, growth potential, overheads, licence fees and the respondents’ earlier offers. The central issue was whether any alleged error in the valuation justified appellate intervention.

1. Appeal dismissed unanimously. Sir Christopher Slade gave the judgment, with Lord Justice Keene and Lord Justice Aldous agreeing. Park J’s assessment of damages at £129,000 disclosed no error warranting interference.

2. The valuation was to be made as at the fixed valuation date. Later events could not be used to prefer a pre-existing forecast over the company’s actual recent trading results known on that date simply because the forecast was later shown to have been accurate. Bwllfa and Merthyr Dane Steam Collieries v The Pontypridd Waterworks Company [1903] A.C. 431 concerned compensation not assessed by reference to a fixed date and was therefore inapposite. Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143 was confined to its statutory context and did not state a general rule for share valuations.

3. Park J had not ignored the company’s growth prospects. He took them into account when selecting the price-earnings ratio, while also taking account of the risks associated with a young and erratically trading company. It was necessary to avoid allowing for the same growth potential twice, both in estimating future profits and in selecting the multiplier.

4. The judge was entitled to conclude that a buyer would allow a 2.5% licence fee for continued use of the UNIGEL product name. The legal position was uncertain, but the Geltec Agreement was to be treated as valid and a buyer would have sought to avoid troublesome challenges. The judge was also entitled to prefer overhead figures based on actual trading evidence to a competing expert opinion, and was not required to explain every disputed item separately.

5. The higher March 1994 offer was conditional and assumed that Mr Joiner would be tied into the business. Given the parties’ deteriorated relationship, it did not provide a proper valuation benchmark. Park J’s reasons were clear and sufficient; the reasoning in Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377 afforded no basis to disturb the valuation.

6. The appeal was dismissed with costs on the standard basis. The respondents’ cross-appeal was also dismissed, with costs on the indemnity basis, and permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division) — in [2002] EWCA Civ 160, unanimously dismissed the claimants’ appeal against the damages assessment. The respondents’ cross-appeal, which they did not pursue, was also dismissed.
• Chancery Division — on 28 July 2000, Park J assessed damages for the failed transfer of the 51% shareholding at £129,000, with interest from 23 November 1994.
• Chancery Division — on 31 January 2000, Park J held that the first and second respondents had breached the option agreement by failing to procure the transfer. He refused specific performance but held that damages were payable.