Goldstein v Levy Gee (a Firm)

A professional valuer is judged primarily by the standard of reasonable skill and care in the valuation process. However, where the complaint concerns the figures in a valuation, liability requires the valuation to fall outside the permissible range or “bracket” available to a competent valuer. An error in method does not itself establish negligence where the resulting figure remains within that bracket. The bracket must reflect the facts of the particular valuation and the range of approaches reasonably open to competent valuers.

Mr Goldstein held shares in Marchday Group plc. Following the termination of his employment, the company’s articles required its auditors, Levy Gee, to value his shares under a deemed transfer procedure. Mr Synett, the responsible audit partner, valued the shares at £52.52 each.

Mr Goldstein alleged negligence in the treatment of the company’s property portfolio, contingent tax liabilities and the unlisted status of the shares. He also initially challenged the treatment of share options, but that complaint was not pursued as a separate head of negligence. The central issue was whether the valuation was negligent despite falling within a range of figures that a competent valuer might reasonably have produced.

1. Outcome. The claim was dismissed. Levy Gee’s valuation of £3,151,200, or £52.52 per share, fell within the permissible bracket and was therefore not negligent.
2. Applicable approach. The court considered the competing authorities on professional valuation negligence. It held, following the ratio of Merivale Moore plc v Strutt & Parker [1999] 2 EGLR 171, that where the figures themselves are challenged, falling outside the permissible margin of error is a necessary condition of liability. The bracket is not determined mechanically. It must reflect the particular facts and the range of approaches reasonably open to a competent valuer.
3. Hypothetical transaction. The articles required valuation between a willing buyer and a willing seller. Both parties were hypothetical, but the market and all real circumstances had to be considered. The valuer had to assess where their competing aspirations would meet, rather than adopting only the buyer’s most favourable case.
4. Property portfolio. The instruction to value the properties as a single portfolio, and the resulting 10 per cent discount, were errors below the standard expected of a competent auditor undertaking a share valuation. There was no permissible range for that item. The proper figure was the aggregate of the individual property values.
5. Contingent tax. Deducting the whole of the contingent tax on investment properties was excessive. A competent valuer should consider what the hypothetical buyer and seller would agree. The likely deduction was 50 per cent, with a permissible range of 35 to 65 per cent.
6. Unlisted status and options. A discount for lack of marketability could reasonably range from nil to 12.5 per cent. The permissible probability of exercise of the options was 50 to 75 per cent. Levy Gee’s assumptions fell within those ranges.
7. Using the lowest and highest permissible variables produced a bracket of £50.46 to £61.55 per share. The impugned valuation was within that bracket.