Griffin v Wainwright & Anor

The court determined the validity of an expert valuation issued under a settlement agreement following a s.994 Companies Act 2006 petition. The judge held that the expert was not functus officio when she signed a draft on 17 February 2016 because the letter of instruction required the expert to send the valuation to the parties before becoming functus officio, but the expert’s later conduct in revising the valuation was unlawful.

The expert materially departed from her express instruction (clause 4.8) by adjusting the independent valuer's figure for The Boathouse in reliance on the property being marketed by an estate agent, rather than adopting the independent valuation she had commissioned, and thereby circumventing the contractual requirement. The expert also breached the implied duty of procedural fairness by taking further submissions from the petitioner about the Foxtons marketing without giving the respondent an opportunity to respond. The challenge based on the minority discount was rejected on the proper construction of clauses 4.2–4.3 and 4.6.1.

This is a first-instance Chancery Division hearing of a dispute between minority and majority shareholders in Hi2 Limited arising from a compromise of a s.994 Companies Act 2006 petition. The settlement (Tomlin) agreement required the minority shares to be bought out at a price determined by a jointly nominated expert, with a valuation date of 30 June 2015 and specific letter of instruction provisions including: independent property valuations (clause 4.8), a minority share discount to be fixed by the expert (clauses 4.2–4.3), and certain treatment of monies withdrawn by the majority shareholder (clause 4.6.1).

• Nature of the claim/application: the petitioner sought, by application in the High Court, a determination whether the expert's determination sent on 17 May 2016 was valid and an injunction to restrain dissipation of sale proceeds (the injunction hearing was adjourned pending this ruling).
• Issues before the court: (i) whether the expert was functus officio after signing a determination on 17 February 2016 and therefore could not validly revise it; (ii) whether the expert materially departed from her instructions by taking into account Foxtons' marketing price for The Boathouse rather than the independent valuer's figure; (iii) whether the expert failed to apply the minority discount required by the instructions (in particular as to sums treated as debt under clause 4.6.1); and (iv) whether the expert breached the duty of procedural fairness by receiving further submissions from the petitioner after declaring the determination complete and without offering the respondent an opportunity to respond.
• Decision and reasoning: The judge found (a) the expert was not functus officio upon signing the draft on 17 February 2016 because the contractual instruction required release to the parties to have binding effect; (b) clause 4.8 required the property valuation component to be the valuation obtained from the independent valuers chosen by the expert, so the expert materially departed from her instructions by adjusting the property valuation in reliance on Foxtons' marketing figure rather than adopting the commissioned valuation or obtaining a revised independent valuation; (c) clauses 4.2–4.3 allowed the expert discretion as to discount rates and did not preclude a 0% discount applying to the specific debt adjustment under clause 4.6.1, so the minority discount challenge failed; and (d) the expert materially breached the implied obligation of fairness by taking further submissions and making adjustments on the basis of matters put by the petitioner alone without giving the respondent an opportunity to comment, which was material because The Boathouse was the company’s principal asset.

The court concluded that the expert's determination dated 17 May 2016 was invalid for the reasons set out and directed further submissions on the injunction application in light of that conclusion.

This first-instance court held that the expert's determination dated 17 May 2016 is invalid. Rationale: the expert was not functus officio on 17 February 2016 (so could in principle revise her draft) and the minority discount point did not invalidate the determination on proper construction of clauses 4.2–4.3 and 4.6.1, but the determination was invalid because the expert materially departed from clause 4.8 by adjusting the independent property valuer's figure for The Boathouse and breached her implied duty of procedural fairness by accepting further submissions from the petitioner without offering the respondent an opportunity to reply. The judge therefore set aside the determination and will hear further submissions on the injunction in light of that ruling.