Case details
Summary
An expert determination clause making a decision final and binding except for manifest error provides a narrow route to court intervention. Manifest error requires more than a wrong answer. It must involve an obvious or easily demonstrable oversight or blunder, capable of affecting the determination and admitting no difference of opinion. Where the expert’s mandate includes contractual interpretation, an erroneous interpretation is not automatically outside the mandate or manifest error. The court must not substitute its own accounting judgment or require perfect calculation. A consistent-basis exercise may take account of relevant post-balance-sheet information where the contract permits and no cut-off rule applies. No implied starting burden arises unless the agreement provides one. None of the accounting challenges established manifest error.
Factual background
The Seller sold the entire issued share capital of a subsidiary to the Buyer under an acquisition agreement. The purchase price was subject to a working-capital adjustment, calculated under Schedule 9. The parties could not agree the adjustment and referred the dispute to an expert, whose report favoured the Buyer. In a claim under CPR Part 8, the Seller challenged the expert’s conclusions on unbilled identified gas, unidentified unbilled gas and electricity, and balances over 12 months old. The central issue was whether the expert had made manifest errors within the meaning of paragraph 4.13 of Part A of Schedule 9.
Held
Disposition. The claim was dismissed. The Seller failed to establish manifest error in any challenged part of the expert’s determination.
- Manifest error. The exception was tightly circumscribed. The visibility formulation in IIG Capital LLC v Van der Merwe ([2007] EWHC 2631 (Ch)) and Amey Birmingham Highways Ltd v Birmingham City Council ([2018] EWCA Civ 264) identified a relevant aspect of the test, but did not exhaust it. The approach in Veba Oil Supply & Trading Gmbh v Petrotrade Inc ([2001] EWCA Civ 1832) supplied an important and necessary component: the error must be an obvious oversight or blunder capable of affecting the determination and admitting no difference of opinion.
- Contractual interpretation. Whether an erroneous contractual interpretation amounts to manifest error depends on the scope of the expert’s engagement. Where the agreement entrusts the expert with necessary questions of contractual interpretation, the error is not automatically outside the mandate and must still satisfy the manifest-error test. A narrower mandate may produce a different result. The Agreement gave the Expert a broad mandate to resolve disputes connected with the Completion Statement, including necessary interpretative issues.
- Accounting basis and subsequent information. Paragraph 2.2(a) of Part A of Schedule 9 was determinative. UK GAAP concepts could inform the Consistent Basis test where they had informed the exercise of accounting judgment in the Management Accounts. The test concerned the basis of judgment, not merely the resulting figure. The Completion Statement itself also had to reflect that basis. No contractual rule excluded relevant post-balance-sheet information, so the length of the relevant period was a matter for the Expert’s accounting judgment.
- Application. The Expert was entitled to value the challenged UIG and U12 balances at zero and to determine the UU figure at £544,527. The Court would not second-guess those accounting judgments or remake the calculation where the Expert had adopted a logical, if rough, approach and no more reliable material had been placed before her. The Agreement created no implied burden of proof; persuasion rested on the party advancing the particular proposition.
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