Franbar Holdings Ltd v Casualty Plus Ltd

On an application for summary judgment, a defendant has no real prospect of defending a claim where its case is better than merely arguable. The court may decide a short point of law or construction, but only where it has the evidence required for a proper determination and the parties have had an adequate opportunity to address the issue.

In an expert determination, the court must first identify the expert’s contractual remit. A departure from that remit may invalidate the determination. If the expert acted within the remit, the determination is subject to challenge only for manifest error, meaning an obvious blunder capable of affecting the result and admitting of no difference of opinion.

The claimant and defendant disputed the price payable under a call option for shares in Medicentres (UK) Ltd. The proceedings concerned the interpretation and application of a shareholders’ agreement, including its mechanism for determining Adjusted EBITDA by an independent accountant acting as expert.

After an earlier preliminary issue was resolved in the claimant’s favour and an appeal was dismissed, the claimant obtained an independent accountant’s determination of the share price. It applied for summary judgment based on that determination, while reserving its contention that the Adjusted EBITDA had already been agreed. The defendant challenged the determination on grounds including lack of authority and manifest error.

1. The summary judgment application was not suitable for determination in the claimant’s favour. The defendant’s arguments were improbable but had a real, though low, prospect of success.
2. The relevant test under CPR 24.2(a)(ii) required a case better than merely arguable. The court could determine a short legal or construction issue only if it had all evidence necessary for a proper determination and the parties had an adequate opportunity to argue it.
3. The claimant was not approbating and reprobating by obtaining the accountant’s determination while maintaining its primary argument. If the prior agreement failed, the determination would be final and binding under paragraph 7 of Schedule 3 to the shareholders’ agreement.
4. The proper sequence in reviewing an expert determination was first to construe the contract and identify the expert’s remit, then to ask whether the expert had materially departed from it. Only if the expert acted within the remit did the question of manifest error arise.
5. Jones v Sherwood Computer Services plc [1992] 1 WLR 277 supported the conclusion that an expert determination could be binding on issues of law or mixed fact and law falling within the contractual remit. Veba Oil Supply & Trading GMBH v Petrotrade Inc [2001] EWCA Civ 1832 stated the stringent manifest-error test. The court accepted that the scope of the expert’s authority was a matter of contractual construction, consistently with Menolly Investments 3 Sarl v CEREP Sarl [2009] EWHC 516.
6. The court was not satisfied that it had sufficient evidence or argument to determine all construction issues. In particular, the treatment of the management fee and the operation of the price/earnings formula required further consideration.
7. The court was minded to make a conditional order under CPR 24.6.6 requiring payment into court, subject to further submissions, and reserved questions concerning election of remedies and the third preliminary issue.

The judgment records that an earlier determination of the first preliminary issue was unsuccessfully appealed to the Court of Appeal. The present judgment was a first-instance decision on the subsequent summary judgment application.