Caribbean Steel Company Limited v Price Waterhouse (a Firm) (Jamaica)

In a professional negligence claim concerning a company valuation, a court should not reject a properly qualified independent expert’s reasoned opinion without a sound basis. Whether a pension-fund surplus should be included in a share valuation, and whether borrowing from the fund materially affected that valuation, require professional assessment against standards and practices at the relevant time. A claimant must plead and prove what difference the alleged error would have made to the valuation and its conduct. General evidence of reliance is insufficient. The appeal was dismissed because negligence and causation were not established. The damages award was also unsustainable because it treated the claim as if there were a warranty that the surplus had no value.

Caribbean Steel Company Limited v Price Waterhouse (a Firm) (Jamaica) concerned the acquisition of a majority shareholding in Caribbean Cable Company Limited after a valuation by Price Waterhouse. The claim alleged negligence and breach of contract arising from the treatment of a pension-fund surplus and borrowing from the fund, including in a subsequent audit. Jones J found negligence and awarded damages. The Court of Appeal of Jamaica set aside that judgment and entered judgment for Price Waterhouse on the claim and counterclaim, holding that the trial judge had wrongly rejected expert evidence and that causation had not been proved. The central issues before the Board were the proper evaluation of professional expert evidence, the effect of the pension arrangements on valuation, and the loss caused by the alleged negligence.

Lord Toulson delivered the single judgment of the Board.

1. Disposition. The Board agreed with the Court of Appeal of Jamaica and dismissed the appeal. Judgment for Price Waterhouse on the claim and counterclaim therefore stood.
2. Professional negligence and expert evidence. The valuation of shares requires professional skill and judgment. Where a properly qualified and reputable independent expert gives a reasoned opinion that the valuation met the required professional standard, the claimant must establish why that opinion should be rejected. The court may reject expert evidence, but must carefully scrutinise the reasons given. Without a sound reason for rejecting a reasoned expert opinion, professional negligence cannot properly be found. The Court of Appeal had cited Sanson v Metcalfe Hambleton and Co [1998] PNLR 542 in support of that approach.
3. Pension surplus. The relevant pension-fund rules had not been put in evidence, and it had neither been alleged nor proved that the statement that the surplus might be brought back into the company contravened those rules. Whether it was reasonable to include the surplus in the valuation, and whether any discount was required because its use might be deferred, were matters for professional opinion based on contemporary accounting standards and practices. A discount was not self-evident, particularly because the fund was an established capital fund. No alternative valuation was proved.
4. Borrowing from the fund. The borrowing was reflected in current liabilities. The loans were receivables repayable on demand, and it was not alleged that the company could not repay them. Their materiality had to be assessed in relation to the company as a whole. The evidence did not establish that the borrowing made Price Waterhouse’s valuation method negligent.
5. Causation and quantum. Although unnecessary to decide after the finding that negligence was not established, the Board observed that Carib Steel had to plead and prove what difference the borrowing should have made to the valuation and would have made to its conduct. General evidence of reliance did not do so. The damages assessment was also unsustainable because it proceeded as if there had been a warranty that the pension surplus had nil value. The parties were given 28 days to make written submissions on costs; otherwise Carib Steel was to pay Price Waterhouse’s costs before the Board.

1. Privy Council. On 9 July 2013, the Board dismissed the appeal and left standing judgment for Price Waterhouse on the claim and counterclaim: [2013] UKPC 18.
2. Court of Appeal of Jamaica. On 29 July 2011, the court set aside Jones J’s judgment and entered judgment for Price Waterhouse on the claim and counterclaim.
3. Trial before Jones J. The judge found negligence in the valuation and post-acquisition audit and awarded damages of J $13,849,000, with interest and costs.