Zedra Trust Company (Jersey) Ltd & Anor v The Hut Group Ltd

A contractual provision requiring one party, at the other’s request and expense, to obtain an expert determination from an identified third party does not ordinarily create an agency relationship. The court must assess the substance of the parties’ rights and obligations. Authority to affect third-party legal relations, fiduciary obligation and principal control are important indicators, although none is indispensable.

A term may be implied only where it satisfies the requirements of reasonableness, clear expression and compatibility with the contract, and is necessary for business efficacy or so obvious as to go without saying. Where an expert determination mechanism would operate unfairly and lack commercial coherence if only a redacted determination were supplied, the full unredacted determination may be implied. Broader disclosure of underlying documents and fee calculations requires separate justification.

The claimants had sold the defendant the entire issued share capital of Cend Ltd under a sale and purchase agreement. The agreement allowed the claimants to require Cend Ltd’s auditors to determine whether there had been tax over-provision or related accounting adjustments. The defendant was to obtain the determination at the claimants’ expense.

Ernst & Young provided the defendant with a report, but the defendant supplied the claimants only its background and executive-summary pages. The claimants sought the complete report, communications, supporting documents, calculations and fee information. They relied on agency and, alternatively, an express or implied contractual entitlement. The central issues were whether the defendant had acted as the claimants’ agent and whether the agreement required disclosure of the requested material.

1. Agency. The relationship created by the sale and purchase agreement was not one of agency. The court had to examine the substance of the parties’ rights and obligations rather than contractual labels. There was no presumption in favour of agency, although an ad hoc agency for a specific task was legally possible.
2. The principal characteristics of agency were authority to affect the principal’s relations with third parties, fiduciary duty and control by the principal. Their absence did not make agency impossible, but was a significant pointer away from that conclusion. The agreement contemplated that the defendant would instruct EY in its own capacity, creating contractual relations between the defendant and EY. The fact that the claimants requested the determination and paid for it did not alter that analysis. The parties’ potentially adverse interests and the agreement’s review and independent-expert procedures also militated against a fiduciary relationship.
3. Implied term. A term could be implied only if it was reasonable, equitable, capable of clear expression and compatible with the express terms, and was either necessary for business efficacy or obvious in the sense that it went without saying. Those requirements were alternatives, but were not to be diluted by considerations of mere convenience or desirability.
4. The agreement’s review mechanism required a party to know the basis of the original determination in order to identify relevant circumstances and make an effective review request. Allowing the defendant, which had an adverse interest, to decide how much of a report paid for by the claimants should be disclosed would be unusual and gave rise to a clear impression of unfairness. Business efficacy and obviousness therefore required an implied term that the defendant provide the claimants with a full and unredacted copy of any EY report or other document containing a determination under paragraph 4.1 or 4.2.
5. No wider term was implied. The claimants were not entitled to all communications, documents supplied to EY, underlying calculations or an itemised fee breakdown. Those materials were not necessary for the review procedure to operate effectively, and the expert-determination structure indicated that the parties had not required such disclosure. The claimants were entitled to a declaration and an order giving effect to the obligation to provide the complete determination.