ESO Capital Luxembourg Holdings II SARL v GSA Invest Management SA & Anor

A court may correct or modify a judgment after it has been handed down but before the order has been drawn up and sealed, where an error or omission has affected the result. In a valuation based on discounted cash flow, the exercise is not mechanically precise. The court may sense-check the outcome against reliable evidence and adjust subjective inputs, such as discount rates and expense assumptions, so that the valuation is reasonable and makes overall sense. That process is not impermissible reverse-engineering where the adjustment remains informed by the valuation analysis and falls within the appropriate evidential ranges.

The claimant had previously obtained judgment for damages following an admitted breach of contract concerning its 30% shareholding in Promoroche. In the earlier judgment, the court valued the underlying hotel using a discounted cash flow approach and assessed the claimant’s damages at CHF 1,879,833.

Before any order had been drawn up or sealed, the defendants identified two material errors. The experts had applied the discount and capitalisation rates to pre-tax rather than post-tax cashflows, and the court had omitted opening balance-sheet liabilities of CHF 3.279 million. The issues were whether the judgment could be modified and, if so, how the hotel and shareholding should be valued.

1. The court held that it had power to reconsider and modify its decision because no order had been drawn up and perfected by being sealed. It should take that opportunity where material errors or omissions had affected the result: see Re L and Another (Children) [2013] 1 WLR 634 (SC). The appropriate course was a supplemental judgment, rather than creating two ostensibly different versions of the original judgment.

2. The court retained its conclusion that post-tax residual cashflows were the appropriate basis for the discounted cash flow valuation. However, valuation was not a precise scientific exercise. The selection of discount and capitalisation rates and the treatment of PPE expenses involved subjective judgment. The final result therefore had to be reviewed against other reliable evidence.

3. A hotel value of CHF 22 million, produced by correcting the tax treatment while otherwise retaining the earlier calculations, was too low and did not make sense against the evidence. The court was entitled to adjust the subjective elements of the valuation. It was not unprincipled reverse-engineering to adopt a final figure informed by the DCF analysis and the other evidence, provided the adjustment remained within the appropriate ranges.

4. The court therefore adopted a gross hotel value of CHF 25.5 million. After transaction costs, CHF 24.48 million was inserted into the company’s balance sheet. The opening liabilities of CHF 3.279 million were deducted. The resulting company net asset value was CHF 1.067 million, of which 30 per cent was CHF 320,100.

The claimant was accordingly entitled to damages of CHF 320,100.

The judgment records an earlier judgment in the same action dated 12 June 2017: [2017] EWHC 1351 (Ch). This supplemental judgment corrected the valuation and damages before any order had been drawn up or sealed.