Cream Holdings Ltd & Ors v Davenport

Where articles of association require an independent accountant to determine share value, appointment is not complete merely because the parties select or nominate a firm. The provision must be read as a whole and in context. It requires agreement between the relevant parties and the firm on the terms of engagement. A firm instructed by only one party is not acting as the contractual Third Party Accountant, and its valuation is not binding under the articles. A willingness to accept one of several firms does not itself constitute an appointment or an offer capable of acceptance. Estoppel cannot overcome those requirements where the terms of the engagement remain unagreed.

The appeal concerned the compulsory transfer provisions in the articles of Cream Holdings Limited. Stuart Davenport held shares which were required to be valued following his removal as a director. The company and Davenport identified BDO Stoy Hayward as a possible valuer, but Davenport did not sign BDO’s engagement letter. BDO later valued the shares on the company’s instructions alone.

Ms Susan Prevezer QC, sitting as a Deputy High Court Judge, held that BDO had not been appointed as the Third Party Accountant and that the valuation was not binding. She also rejected the company’s estoppel argument. The central issues were the proper construction of the articles and whether Davenport was nevertheless prevented from disputing BDO’s appointment.

The Court of Appeal unanimously dismissed the appeal. Lord Justice Mummery gave the principal judgment. Lord Justice Sedley agreed with the construction and result, and Lord Justice Wilson agreed with both judgments.

1. Article 2.1 had to be construed as a whole, having regard to its language, purpose and context. The aim was to reach a reasonable result within the parties’ probable intentions. Prolonged debate over the words chosen and appointment was less useful than considering the substance of the appointment process.
2. The appointment of the Third Party Accountant was a process, not merely an event consisting of selecting a name. It was incomplete unless the relevant parties and the accountants agreed the terms on which the accountants would act. A selected firm might decline to act, and a firm acting only on one party’s instructions would not be acting as the Third Party Accountant under the articles.
3. Davenport’s indication that he would accept any of three firms, including BDO, did not constitute agreement on an appointment. It was not an offer capable of acceptance creating an appointment contract. Since Davenport had not agreed BDO’s terms of engagement, BDO was not the Third Party Accountant and its valuation did not bind him.
4. The estoppel argument failed for the same reason. Any representation that BDO had been chosen could not satisfy the articles where the terms of the valuation had not been agreed by both parties with BDO.
5. Lord Justice Sedley added that, if a consensual appointment was not made within seven days, Article 2.1 provided for nomination by the President of the Institute of Chartered Accountants.

1. Court of Appeal (Civil Division) dismissed the appeal and upheld the declaration that BDO’s valuation was not binding.
2. High Court of Justice, Chancery Division, in [2008] EWHC 298 Ch, held that BDO had not been validly appointed as the Third Party Accountant and rejected the estoppel argument.