Premier Telecom Communications Group Ltd & Anor v Webb

An expert determination is final and binding unless the expert materially departs from the mandate defined by the parties’ contract. The court must distinguish a failure to undertake the agreed exercise from an error made while properly carrying it out. The former invalidates the determination; the latter ordinarily does not.

Whether an error of law invalidates a determination also depends on construing the contract. A broadly framed valuation mandate will commonly entrust the expert with interpreting and applying recognised professional standards and exercising judgment on financial data. Clear contractual language is required to reserve such matters to the court.

The parties compromised employment and threatened minority-shareholder proceedings by agreeing that expert valuers would determine the fair value of a 40% shareholding in a private company. The valuers assessed the shares at £4.218 million. The company and its majority shareholder sought to overturn that valuation, alleging departures from the valuers’ mandate and procedural errors.

The Mercantile Judge at Bristol granted the minority shareholder summary judgment under Part 24 of the Civil Procedure Rules and dismissed the claim. The claimants appealed. The central issue was whether the alleged errors concerned matters outside the expert’s contractual mandate or merely the expert’s judgment while performing the agreed valuation.

1. The appeal was dismissed unanimously. The judge had correctly granted summary judgment because the relevant questions of contractual construction could be resolved on the available material and the claim had no real prospect of success.

2. An expert determination is final and binding unless the expert acts outside the contractual mandate. The court must construe the mandate and distinguish an expert who has failed to embark on the agreed exercise from one who has undertaken that exercise but arguably made mistakes while doing so. A material departure of the former kind invalidates the determination; errors of the latter kind ordinarily leave it binding, although they may support a negligence claim.

3. Whether an error of law invalidates an expert determination depends upon the construction of the appointment contract. The suggestion in Barclays Bank Plc v Nylon Capital LLP [2011] EWCA Civ 826 that any error of law arising during implementation might suffice was obiter and had not attracted the agreement of the other members of that court. As Campbell v Edwards [1976] 1 W.L.R. 403 demonstrated, the contract identifies the matters entrusted to the expert, the effect of special instructions and the extent to which decisions on law or mixed fact and law bind the parties.

4. The parties had not reserved every question of law to the court merely because their earlier correspondence referred to proceedings under section 994 of the Companies Act 2006. Such a construction would undermine the ordinary purpose of obtaining a quick, comparatively inexpensive and binding expert decision. Only an error striking at the root of the agreement was likely to have been intended to invalidate the valuation.

5. The valuers acted within their mandate when interpreting the agreed valuation standards, assuming that the company’s informal commercial relationships would continue, deciding how cash and other financial data should be treated, and evaluating figures contained in the factual memorandum. The instruction concerning continuing relationships required the valuers to attribute stability and permanence to arrangements which lacked formal security.

6. The factual memorandum was a procedural step towards the final report. It did not require the valuers to adopt its raw data without analysis or evaluation. The alleged discrepancies therefore disclosed no reasonably arguable departure from the mandate.

• Court of Appeal (Civil Division): The appeal in [2014] EWCA Civ 994 was dismissed unanimously. The order granting the respondent summary judgment was upheld.
• High Court, Queen’s Bench Division, Bristol District Registry, Mercantile Court: His Honour Judge Havelock-Allan QC granted summary judgment under Part 24 of the Civil Procedure Rules and dismissed the claim challenging the expert valuation.