Begum v Hossain & Anor

An expert determination is contractual. The court must first identify the matters remitted to the expert and then ask whether the expert made a mistake while performing that mandate or materially departed from it. A mistake made within the mandate generally binds the parties, even if it affects the result. A material departure from the mandate does not bind them, and the court need not investigate its effect on the result. Where an agreement requires a valuation by reference to specified books and records, the expert must consider their substantive contents. The weight given to competing information, and the resulting valuation, remain matters for the expert. If the issue lies outside the expert’s expertise, an express power to obtain professional assistance may be used.

The appellant and first respondent jointly owned the second respondent, an Indian restaurant company. After the parties fell out, the appellant presented an unfair prejudice petition under section 994 of the Companies Act 2006. They settled on terms requiring the first respondent to buy the appellant’s shares at a price to be determined by an independent valuer. The valuation was to reflect fair value as at 26 March 2010, having regard to the company’s books and records, which expressly included handwritten takings.

The valuer relied on the profit and loss accounts and did not substantively consider the handwritten takings. The High Court dismissed the appellant’s challenge to the valuation: [2014] EWHC 1235 (Ch). The issue on appeal was whether that approach was a permissible valuation judgment or a material departure from the valuer’s contractual mandate.

1. Appeal allowed. The valuation was set aside because the valuer materially departed from the instructions contained in the settlement.
2. The governing principles were those stated in Jones v Sherwood Computer Services Plc and approved in Veba Oil Supply & Trading GmbH v Petrotrade Inc. The court must identify what the parties agreed to remit. A mistake made in carrying out those instructions is distinct from a departure from them. A mistake within the mandate binds the parties, but a material departure means that the parties did not agree to be bound. Once a material departure is established, its effect on the result is irrelevant.
3. The settlement required the valuer to determine the fair value of the shares by having regard to the company’s books and records. Clause 7 expressly included the handwritten takings and warranted that the records materially accurately recorded the company’s actual takings. On ordinary construction, the valuer therefore had to consider the contents of all the relevant documents, not merely acknowledge that the handwritten takings existed.
4. The valuer retained discretion over the weight to give the handwritten takings, whether to adjust or prefer the trading accounts, and the valuation methodology. His conclusion could not be challenged merely because the court disagreed with that assessment. But he could not direct himself that the handwritten takings were outside his role and leave them out of account altogether.
5. The valuer had an express power to obtain professional assistance. If comparison of the handwritten takings with the trading accounts exceeded his expertise, he could instruct an accountant at the parties’ expense. His failure to consider the material and his decision to await a jointly instructed forensic accountant amounted to acting outside the mandate. The court held that implication of a term was unnecessary because the result followed from construction of the express settlement terms.

1. Court of Appeal (Civil Division) allowed the appeal and set aside the valuation.
2. High Court, Chancery Division, Companies Court (Mr Richard Sheldon QC sitting as a deputy High Court judge) dismissed the appellant’s claim: [2014] EWHC 1235 (Ch).