Attwood v Maidment & Ors

The court determined the valuation issues arising under an unfair prejudice petition in respect of Annacott Holdings Limited and confirmed the remedy previously declared: a buy-out of the petitioner’s 2,500 shares as at 1 October 2005 and payment of quasi-interest. The judge preferred the evidence of the petitioner’s valuer (Mr Mason) to that of the respondent’s valuer (Mr Roe) except where specific downward adjustments to Mr Mason’s base valuations were justified. The court found that three mortgages were outstanding on the valuation date in the aggregate amount of £155,455.38 and directed a single joint expert accountant (Mr Taub) to revisit his calculations in the light of the court’s findings.

The court set valuation parameters: a general 2.5% reduction for condition (subject to specific valuer concessions), a 7.5% discount where properties were subject to assured shorthold tenancies, a 5% portfolio discount (not 10%), selling costs of 1% estate agent and 0.5% solicitor, and rejection of any discount for lack of marketability or for lack of control. Quasi-interest was awarded on an investment/lending basis at base rate plus 2% up to 31 October 2008 and base rate plus 3% thereafter.

Background and procedural posture. This is the hearing directed by the court to determine the purchase price and the rate/amount of quasi-interest following the court’s earlier findings that the affairs of Annacott Holdings Limited were conducted in a manner unfairly prejudicial to the petitioner. The petitioner had previously succeeded on liability and relief in judgments dated July and September 2011; the Court of Appeal dismissed the respondent’s attempt to appeal the substantive decision on 7 February 2012. Paragraph 2 of the September 2011 order required a further hearing to determine valuation and quasi-interest.

Nature of the application.

• Remedy sought: buy-out of the petitioner’s 2,500 shares at value as at 1 October 2005 and an award of quasi-interest.
• Issues before the court: (i) whether three specific properties had mortgages outstanding as at 1 October 2005 and the amount outstanding; (ii) valuation of the 46 properties forming the company’s principal assets; (iii) conversion of property valuations into a fair share valuation of the petitioner’s holdings including all applicable discounts; (iv) the rate, basis and amount of quasi-interest.

Key facts and evidence. The hearing included evidence from two competing property valuers and a single joint expert accountant on share valuation, together with factual witnesses addressing property condition, mortgages and interest rates. Documentation was extensive and included contemporaneous mortgage and mortgage-valuation reports and marketing material.

Court’s reasoning and conclusions.

• The court accepted the respondent’s account and supporting documentary material that three mortgages remained outstanding at the valuation date and found the outstanding aggregate amount to be £155,455.38.
• On expert property evidence the court found the respondent’s valuer (Mr Roe) to be generally unreliable and the petitioner’s valuer (Mr Mason) to be substantially preferable, but concluded that a number of modest downward adjustments to Mr Mason’s base valuations were appropriate on specific properties after critique in cross-examination.
• The court set map points for valuation adjustments: a general 2.5% deduction for condition (unless the parties’ experts justified a different figure for particular properties); a 7.5% deduction for the existence of assured shorthold tenancies; a 5% portfolio discount if applicable; selling costs assessed at 1% estate agency fee and 0.5% legal costs; and rejection of any discount for lack of marketability or lack of control of the petitioner’s shares.
• On quasi-interest the court held the award should be compensatory on an investment/lending basis rather than a borrowing basis and fixed the margin at base rate +2% up to 31 October 2008 and base rate +3% thereafter.
• The court directed the joint expert (Mr Taub) to re-visit and recalculate the share valuation and any tax allowance in light of these findings and the mortgage figure. If disagreement remains, further submissions or a return hearing was to be arranged.

Wider implications. The judgment explains the exercise of valuation discretion in unfair prejudice buy-outs: the court will assess and prefer expert evidence, adopt tailored discounts for condition, tenancy and portfolio effects, and will not apply automatic marketability discounts where that would be unfair between parties.

The court determined the outstanding mortgage amount (£155,455.38), preferred the petitioner’s valuer’s evidence subject to specified downward adjustments to particular property base values, fixed valuation parameters (2.5% general condition deduction, 7.5% AST deduction, 5% portfolio discount, selling costs at 1% agent and 0.5% solicitor), rejected any discount for lack of marketability or control, and awarded quasi-interest on an investment basis at base +2% until 31 October 2008 and base +3% thereafter. The court directed the joint expert (Mr Taub) to re-calculate the share valuation and any tax allowance in accordance with those determinations and to submit revised figures; further procedural steps were ordered if disagreements remain.

This hearing followed two earlier first-instance judgments of the same court: an extempore judgment after trial ([2011] EWHC 2186 (Ch)) finding unfair prejudice for the petitioner and a September 2011 extempore judgment ([2011] EWHC 3180 (Ch)) determining relief in principle. An application by the respondent to appeal the substantive decision was dismissed by the Court of Appeal on 7 February 2012 (application to appeal dismissed by Arden and Moses LJJ).